Options for Contraceptive Procurement: Lessons Learned from Latin America and the Caribbean

Publication date: 2006

OPTIONS FOR CONTRACEPTIVE PROCUREMENT LESSONS LEARNED FROM LATIN AMERICA AND THE CARIBBEAN OCTOBER 2006 This publication was produced for review by the United States Agency for International Development. It was prepared by the DELIVER and POLICY projects, and Task Order 1 of the USAID | Health Policy Initiative. OPTIONS FOR CONTRACEPTIVE PROCUREMENT LESSONS LEARNED FROM LATIN AMERICA AND THE CARIBBEAN The authors’ views expressed in this publication do not necessarily reflect the views of the United States Agency for International Development or the United States Government. DELIVER DELIVER, a six-year worldwide technical assistance support contract, is funded by the U.S. Agency for International Development (USAID). Implemented by John Snow, Inc. (JSI), (contract no. HRN-C-00-00-00010-00) and subcontractors (Manoff Group, Program for Appropriate Technology in Health [PATH], and Crown Agents Consultancy, Inc.), DELIVER strengthens the supply chains of health and family planning programs in developing countries to ensure the availability of critical health products for customers. DELIVER also provides technical management of USAID’s central contraceptive management information system. POLICY and the USAID | Health Policy Initiative The POLICY Project was funded by the U.S. Agency for International Development under Contract No. HRN-C-00-00­ 0006-00, which ended on June 30, 2006. Subsequent work continued under Task Order 1 of the USAID | Health Policy Initiative (Contract No. GPO-I-01-05-00040-00). Task Order 1 is implemented by Constella Futures in collaboration with the Center for Development and Population Activities, the White Ribbon Alliance, and the World Conference of Religions for Peace. The Health Policy Initiative works with governments and civil society groups to achieve a more supportive policy environment for health, especially family planning/reproductive health, HIV/AIDS, and maternal health. Recommended Citation Sarley, David, Varuni Dayaratna, Wendy Abramson, Jay Gribble, Nora Quesada, Nadia Olson, and Verónica Siman Betancourt. 2006. Options for Contraceptive Procurement: Lessons Learned from Latin America and the Caribbean. Arlington, Va.: DELIVER, and Washington, DC: USAID | Health Policy Initiative, for the U.S. Agency for International Development. Abstract In upcoming years, countries in the Latin America and Caribbean Region will see a gradual decline in donations and technical assistance toward ensuring contraceptive security (CS), which is when people are able to choose, obtain, and use high-quality contraceptives whenever they need them. In light of this trend, governments throughout the region are faced with ensuring the provision of family planning services, including a continuous supply of contraceptives. Several countries, including Bolivia, the Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Nicaragua, Paraguay, and Peru, have begun to explore ways to finance and efficiently procure contraceptives for their target populations. This report analyzes the legal and regulatory framework in each of the nine focus countries that may affect future procurement of contraceptive commodities, as well as the current policy environments of five USAID “graduated” countries that are now procuring contraceptives without foreign assistance (namely, Brazil, Chile, Colombia, Costa Rica, and Mexico). Additionally, this report presents country- specific pricing data for contraceptives, providing a comparative analysis of how different procurement policies affect price as well as the large variation in price found among international suppliers. Next, the report illustrates lessons learned from all 14 countries to help improve procurement processes, streamline regulations, and prepare for the eventual phaseout of donations and technical assistance. Careful consideration of these lessons, especially experiences from the five graduated countries, can help governments prepare to efficiently procure their own contraceptives in the long run. Finally, taking into account analyses presented in this report and the various levels of efficiency and procurement capacity of each of the nine focus countries, the final section presents a series of recommendations and outlines different options that each county may implement to improve access to contraceptives and realize potentially signifi cant cost-savings. DELIVER John Snow, Inc. 1616 North Fort Myer Drive, 11th Floor Arlington, VA 22209 USA Phone: 703-528-7474 Fax: 703-528-7480 E-mail: deliver_project@jsi.com Internet: deliver.jsi.com USAID | Health Policy Initiative Constella Futures 1 Thomas Cir cle, Suite 200 Washington, DC 20005 USA Phone: 202-775-9680 Fax: 202-775-9694/9698/9699 E-mail: policyinfo@healthpolicyinitiative.com Internet: www. healthpolicyintiative.com CONTENTS ACRONYMS . vii ACKNOWLEDGMENTS . xi EXECUTIVE SUMMARY. xiii Introduction . xiii Legal and Regulatory Analysis . xiii Pricing Analysis . xiv Lessons Learned . xv Procurement Options . xvii INTRODUCTION . 1 Objective and Approach. 1 Methodology . 2 Report Organization . 4 LEGAL AND REGULATORY FRAMEWORK . 5 A Supportive National Policy Environment . 5 Public Sector Funding for Contraceptives . 5 Laws That Govern the Procurement of Medicines and Contraceptives . 7 Procurement Practices and Mechanisms . 9 Conclusions: Legal and Regulatory Environment .14 CONTRACEPTIVE PRICES .17 Comparing CIF Prices .17 Comparing Private Sector Prices.20 Comparing Cost Structures .22 Pricing Conclusions .26 LESSONS LEARNED.29 Strengthening Procurement Planning and Management .30 Measures to Improve Transparency .32 Value-for-Money Strategies .33 Establishing Quality Control Procedures .37 Other Lessons for Phaseout .37 PROCUREMENT OPTIONS .41 Short-Term Options .41 Medium-Term Options .44 Long-Term Options .46 Long-Term Sustainable Procurement .49 CONCLUSIONS.51 REFERENCES.53 Country-Specifi c Documents .53 CONTENTS iii Price Manuals .54 Other Resources .54 ANNEX 1. SUMMARY PROCUREMENT PRACTICES BY COUNTRY .57 Bolivia .57 Dominican Republic .57 Ecuador.58 El Salvador .58 Guatemala .58 Honduras.59 Nicaragua.59 Paraguay .59 Peru .59 Chile .61 Brazil.61 Costa Rica .62 Colombia .63 Mexico.63 ANNEX 2. SUMMARY OF DRUG SUPPLY SYSTEMS, CONTRACEPTIVE FINANCING,AND PROCUREMENT .65 ANNEX 3. SUMMARY OF REGULATIONS .69 FIGURES 1. Family Planning Client Profiles in Peru’s Ministry of Health, 1996–2004 . 6 2. Cost Structure for Oral Contraceptives in the Public and Social Marketing Sectors (2005 U.S.$) .24 3. Cost Structure for Injectable Contraceptives in the Public and Social . Marketing Sectors (2005 U.S.$) .25 4. Cost Structure for IUDs in the Public and Social Marketing Sectors (2005 U.S.$) .26 5. Illustrative Procurement Steps .31 6. Levels of Sustainability of Procurement in LAC Region .50 TABLES 1. Pricing Terminology . 3 2. Advantages and Disadvantages of Different Public Sector Options for Obtaining Contraceptives .12 3. Regional Comparison of Public Sector Contraceptive Procurement Practices .15 4. CIF Prices for Generic Oral Contraceptives .18 5. CIF Prices for Injectable Contraceptives .19 6. CIF Prices for Copper T-380A IUDs .20 7. Retail Prices for Oral Contraceptives .21 8. Retail Prices for Injectable Contraceptives .22 9. Costs Associated with Transportation, Duties and Tariffs, and VAT .23 10. Procurement Principles .29 OPTIONS FOR CONTRACEPTIVE PROCUREMENT: LESSONS LEARNED FROM LATIN AMERICA AND THE CARIBBEANiv 11. Levels of Quality Control .36 12. Summary of Constraints and Procurement Options .42 BOXES 1. Improving Efficiency and Transparency through Pooled Procurement of Contraceptives by a Semi-autonomous Entity .11 2. A Lesson from Costa Rica—Ensuring Transparency in Quality Control .32 3. NGO Sustainability and the Case of APROFA in Chile .37 4. Lessons Learned in Brazil from BEMFAM .39 5. PAHO Revolving Fund for Vaccines—Can It Work for Contraceptives? .45 6. Benefits of Removing VAT from Condoms in Brazil, and from All Methods in Colombia .46 7. Some Examples of Subregional Harmonization .48 A-1. Ensuring Sustainability of CS–– Innovative Examples from Guatemala and Ecuador .58 A-2. Exploring New Procurement Options in Peru .60 CONTENTS v OPTIONS FOR CONTRACEPTIVE PROCUREMENT: LESSONS LEARNED FROM LATIN AMERICA AND THE CARIBBEAN vi ACRONYMS ADOPLAFAM Asociación Dominicana de Planifi cación Familiar, Inc. (Dominican Republic family planning association, a nonprofi t organization) ANVISA National Health Surveillance Agency (Brazil) APROFA Asociación Chilena De Protección De La Familia (Chilean family planning association, a nonprofi t organization) ARV antiretroviral BEMFAM Bem-Estar Familiar no Brasil (Brazilian family planning association, a nonprofi t organization) CAFTA Central American Free Trade Agreement CBD community based distribution CCSS Caja Costarricense de Seguro Social (Costa Rican Social Security Institute) CEDPA Center for Development and Population Activities CENABAST Central de Abastecimiento (Chilean national procurement agency for the National Health Service) CGRL Coordenação Geral de Recursos Logísticos (Brazilian General Coordination of Logistics Resources) CIF Cost Insurance Freight CIPS Centro de Insumos Para la Salud (Nicaraguan MOH Central Warehouse) COFEPRIS Comisión Federal para la Protección contra Riesgos Sanitarios (Mexican Federal Commission for Protection against Sanitary Risk) CONECTA USAID-funded project to improve programs for reproductive health, child survival and against HIV/AIDS in the Dominican Republic. Executed by Family Health International, with collabo­ ration from Abt Associates and ALEPH CPR contraceptive prevalence rate CS contraceptive security DAIA Disponibilidad Asegurada de Insumos Anticonceptivos (Contraceptive Security) DMPA depot medroxyprogesterone acetate (generic name for Depo-Provera) EDL essential drug list EMP Empresa Médica Previsional (Nicaraguan Provisional Medical Supplier) EXO USAID Executive Offi ce FDA Food and Drug Administration FIM Farmacia Institucional Municipal (Bolivian Institutional Municipal Pharmacy) FOB free on board FP family planning GMP good manufacturing practice HAI Heath Action International IAPSO Inter-Agency Procurement Services Offi ce IBRD International Bank for Reconstruction and Development (World Bank) ICB International Competitive Bidding ICPD International Conference on Population and Development ACRONYMS vii IDA International Dispensary Association IDB Inter-American Development Bank IESS Instituto Ecuatoriano de Seguro Social (Ecuadorian Social Security Institute) IGSS Instituto Guatemalteco de Seguro Social (Guatemalan Social Security Institute) IMSS Instituto Mexicano del Seguro Social (Mexican Social Security Institute) INSS Instituto Nicaragüense del Seguro Social (Nicaraguan Social Security Institute) IPPF International Planned Parenthood Federation IPS Instituto de Previsión Social (Paraguay Social Security Institute) IRP International Reference Price ISP Instituto de Salud Pública (Chilean Institute of Public Health) IUD intrauterine device JICA Japan International Cooperation Agency JSI John Snow, Inc. LAC Latin America and the Caribbean MERCOSUR Mercado Común del Sur (Southern Common Market) MEXFAM Fundación Mexicana para la Planeación Familiar (Mexican family planning nonprofi t organization) MINSA Ministerio de Salud (Peru Ministry of Health) MOH Ministry of Health MOP Ministry of Planning MOU Memorandum of Understanding MSPAS Ministerio de Salud Pública y Asistencia Social (El Salvador Ministry of Public Health and Social Assistance) MSPBS Ministerio de Salud Pública y Bienestar Social (Paraguayan Ministry of Health and Social Well-Being) MUDE Mujeres en Desarrollo Dominicana (Dominican Republic nonprofi t organization) NAFTA North American Free Trade Agreement NGO nongovernmental organization OTS Order Tracking System PAFIE Program of Assistance with Pharmaceutical and Strategic Supplies (Brazil) PAHO Pan-American Health Organization PATH Program for Appropriate Technology in Health PROFAMILIA Asociación Pro-Bienestar de la Familia Colombiana (Colombian family planning association, a nonprofi t organization) PROFAMILIA Asociación Dominicana Pro-Bienestar de la Familia (A Dominican family planning association, a nonprofi t organization) PROMESE Programa de Medicamentos Esenciales (Dominican Republic Program of Essential Medicines) PSI Population Services International RH reproductive health RHC reproductive health commodity RHI Reproductive Health Interchange RTI Research Triangle Institute viii OPTIONS FOR CONTRACEPTIVE PROCUREMENT: LESSONS LEARNED FROM LATIN AMERICA AND THE CARIBBEAN SABS Sistema de Administración de Bienes y Servicios (Bolivian Goods and Services Administration System) SAFCO Sistema integrado de administración fi nanciera y control gubernamental (Bolivian integrated system for finance administration and government control) SDPs service delivery point(s) SESPAS Secretaría de Estado de Salud Pública (Dominican Republic Ministry of Health) SIBASI Sistema Básico de Salud Integral (El Salvador Regional level of the MOH—Basic System for Integrated Health) SICA Sistema de Integración Centroamericana (Central American Integration System) SISMED Sistema de Suministro de Medicamentos (Peruvian Medical Supply Purchasing System) SLI Standard of Living Index SPARHCS Strategic Pathway to Reproductive Health Commodity Security SSA Secretaría de Salud (Mexican Secretary of Health) SUMI Seguro Universal Materno Infantil (Bolivian Universal Maternal-Infant Insurance) SUS Unified Health System (Brazil) SWAp sector wide approach TB tuberculosis TLC Tratado de Libre Comercio (Free Trade Agreement) UFV Unidad de Fomento de Vivienda (Bolivian unit of account linked to infl ation) UN United Nations UNDP United Nations Development Programme UNFPA United Nations Population Fund UNICEF United Nations Children’s Fund USAID United States Agency for International Development VAT value-added tax WHO World Health Organization ACRONYMS ix OPTIONS FOR CONTRACEPTIVE PROCUREMENT: LESSONS LEARNED FROM LATIN AMERICA AND THE CARIBBEAN x ACKNOWLEDGMENTS This regional study of contraceptive procurement policies, practices, and future options could not have been completed without the contributions and participation of the Contraceptive Security Commit­tees (DAIA Committees) throughout Latin America and the Caribbean (LAC); the United Nations Population Fund (UNFPA); and the International Planned Parenthood Association (IPPF) affi liates in Bolivia, Ecuador, El Salvador, the Dominican Republic, Guatemala, Honduras, Nicaragua, Paraguay, and Peru; other NGOs; and the ministries of health or the Social Security Institutes of Brazil, Chile, Costa Rica, Colombia, and Mexico. The authors express their gratitude to the many officials and health providers in each of these coun­ tries who took time from their busy schedules to meet with the assessment teams. We are also grateful to U.S. Agency for International Development’s (USAID) Bureau for Latin America and the Caribbean, particularly Lindsay Stewart, for supporting this initiative. The authors thank the following individuals for their valuable comments during the technical review of this document: Lindsay Stewart and Tanvi Pandit-Rajani (USAID); David Smith and Ingegerd Nordin (UNFPA); and Tony Hudgins and Raja Rao (DELIVER). The authors also thank the following staff members and consultants from the DELIVER and POLICY1 proj­ ects, who provided tremendous support in the implementation of the study and the writing and editing of the report: Juan Agudelo, Carolina Arauz, María Angélica Borneck, Carlos Lamadrid, Roberto López, Cristian Morales, Patricia Mostajo, Jose Ochoa, Patricia Saenz, Anabella Sánchez, and Bernardo Uribe. The report is based on information about procurement regulations and laws, as well as on actual contraceptive prices, collected from June 2005 through March 2006 in nine countries: Bolivia, the Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Nicaragua, Paraguay, and Peru. This regional procurement prac­ tices and options report is available in English and Spanish, as are the individual country reports. All of the documents, including the full country assessment reports, are listed in the references for this document and may be obtained directly from DELIVER and the USAID | Health Policy Initiative. Summaries of the country assessment reports can be found on the DELIVER and Health Policy Initiative websites (www.deliver.jsi.com and www.healthpolicyinitiative.com). 1. The POLICY Project ended June 30, 2006.Work on this activity continued under Task Order 1 of the USAID | Health Policy Initiative, implemented by Constella Futures. ACKNOWLEDGMENTS xi OPTIONS FOR CONTRACEPTIVE PROCUREMENT: LESSONS LEARNED FROM LATIN AMERICA AND THE CARIBBEAN xii EXECUTIVE SUMMARY INTRODUCTION Rapidly scaling up procurement capacity in Latin America and the Caribbean Contraceptive security is said to exist when people are able to choose, obtain, and use high-quality contraceptives whenever they need them. As donors begin to phase out donations to countries in Latin America and the Caribbean (LAC), governments are taking increasing responsibility for contraceptive procurement. This report summarizes experiences and valuable lessons learned while facing new procurement challenges in 14 countries in the LAC region, including nine United States Agency for International Development (USAID) presence countries (Bolivia, the Dominican Republic, Ecuador,2 El Salvador, Guatemala, Honduras, Nicaragua, Paraguay, and Peru) and fi ve countries that no longer receive technical assistance or donations for contraceptive procurement (Brazil, Chile, Colombia, Costa Rica, and Mexico). In addition to this regional summary, DELIVER and POLICY have developed nine reports detailing conditions in countries where USAID continues to have a presence or receive technical assistance, five reports from USAID- graduated countries, and two annexes summarizing procurement regulations and practices in LAC. Governments in LAC have the common goal of achieving sustainable contraceptive security (CS) for their citizens. While rapidly scaling up their procurement capacity, these countries have faced a multitude of challenges in obtaining quality contraceptives in the most effi cient and cost-effective manner possible. The wide array of experi­ ences, challenges, and solutions implemented in each country provide important lessons for the region on how to strengthen CS through improvements of the procurement process. The ultimate purpose of this report is to identify options for strengthening and ensuring sustainable CS by improving legal and regulatory environments and providing options for the efficient procurement of high-quality contraceptives in countries throughout the region. LEGAL AND REGULATORY ANALYSIS Restrictive procurement laws but creative solutions 2. Ecuador is included in the list of USAID-presence countries, because, although it has been graduated from health programs, it continues to have other USAID-funded activities.Through this project and others, Ecuador has recently received some technical assistance from USAID for health programs. EXECUTIVE SUMMARY xiii Wide variety of prices both within and between countries and subregions All of the countries studied have made both legal and financial commitments to ensure that their citizens have access to family planning services when they need them. Some countries have gone further than others by earmarking funds (such as in Guatemala, El Salvador, Paraguay and Peru), providing legal protection for ensuring a budget line for contraceptives (such as in Ecuador), and including contraceptives on essential drug lists (EDLs).3 Some of these countries have developed their procurement capacity by designing and implementing public sector- funded strategies for purchasing contraceptives (Peru, Honduras, the Dominican Republic, El Salvador, Ecuador, and Guatemala), while others are just beginning to devise procurement strategies and continue to receive donations on behalf of their citizens (Nicaragua, Bolivia, and Paraguay). The legal and regulatory environments in these countries are often complex and restrictive when procurement involves the use of public funds: some favor contracts to benefit local producers (most of the USAID-presence countries) or impose taxes that make imported goods expensive (Peru and El Salvador); others allow slightly more flexibility for procurement agents to explore prices in local and international markets. In an effort to streamline procurement processes and gain access to lower-priced commodities, most countries have adopted a centralized system in which a single agency is responsible for acquiring or negotiating a bulk price for contraceptives to be distributed throughout the country. Other countries, like Bolivia and Ecuador, have decen­ tralized health management and procurement, respectively. Similarly, to obtain quality commodities at a good price, despite restrictive legal frameworks, many countries have exceptions that, in some cases, allow the public sector to purchase contraceptives from international organizations, such as the United Nations Population Fund (UNFPA). This option preserves principles of efficiency and trans­ parency throughout the procurement process while giving countries access to economies of scale, lower prices, and quality commodities. PRICING ANALYSIS Experience in prices obtained through public procurement has been mixed. Countries such as Chile, Costa Rica, and Peru have obtained prices at or even below international reference prices (IRPs), in some cases lower than prices paid by donors, by buying generic rather than brand items. Other countries have done less well. In Brazil, the more restrictive and closed domestic market combined with governance concerns, including issues related to transparency, has contributed to high prices. In Ecuador, decentralization has contributed to lower purchase volumes and higher prices paid to local suppliers. By using international organizations as procurement agents and accessing international markets, countries have managed to obtain quality generic contraceptives at internationally competitive prices. For instance, several countries have achieved dramatic savings by procuring through UNFPA (Peru, the Dominican Republic, and El Salvador). In El Salvador, for example, these savings were estimated at approximately U.S.$3 million per year in 2004 and 2005. Nevertheless, there are also costs associated with using this mechanism, including the cost of distribution because UNFPA delivers at the central level; the need to pay upfront; and the cost of delays when procurements are not planned well in advance. Those countries that are the most informed throughout the buying process have been able to obtain the most competitive prices (Chile, Costa Rica, Peru, and El Salvador). For instance, following extensive market research 3. All nine USAID-presence countries include contraceptives on their EDLs except Paraguay and, for some products, Ecuador. xiv OPTIONS FOR CONTRACEPTIVE PROCUREMENT: LESSONS LEARNED FROM LATIN AMERICA AND THE CARIBBEAN and price comparisons, Peru procures some contraceptive methods from UNFPA, while procuring others from private suppliers such as Pfizer (for injectables delivered to the district level) and ESKE/FamyCare (for oral contraceptives).4 Similarly, in 2005, El Salvador procured condoms from a local supplier because there was not a significant price difference from UNFPA and, at the time, the Ministry of Health (MOH) did not have the funds to procure all methods at once. Costa Rica has established a similar practice of relying on multiple sources for contraceptives. In addition, some countries have realized significant savings on the purchase of high-quality products by allowing a centralized agency to negotiate procurements on behalf of health facilities throughout the country. By centralizing these purchases or negotiating prices for a larger volume of products, countries are able to obtain bulk rates. There are considerable variations in prices paid for the same contraceptive method by the public and nongovern­ mental organization (NGO) sectors in each country. This disparity suggests the need for greater coordination and exchange of information. Furthermore, there are published recommended retail and wholesaler prices for a wide range of pharmaceuticals, including contraceptives in several South American countries.5 This helps to ensure that prices in the private sector do not vary considerably among different regions of a country or diff erent neighborhoods within a municipality. Published prices were not obtained in Central America, and greater variation was observed in prices for individual methods both between and within countries. An analysis of contraceptive prices in the private sector shows large variations across the region and even within each subregion. These variations are partly explained by differential pricing as international suppliers adjust their supply prices according to the different socioeconomic situation in each country. They are partly due to the restric­ tive nature of the procurement regulations, with prices (commercial margins) tending to be higher in the Central American countries that have the most restrictive procurement regulations and the least competitive commercial sectors. The larger more economically developed Andean countries appear to have lower retail prices for hormonal methods. These price variations across countries demonstrate the need for more information sharing among countries about prices being paid for contraceptives. In sum, contraceptive are being procured at a wide variety of prices in the public and private sectors. Th ere is significant scope for countries to streamline the procurement process, build the capacity necessary, and tap into international sources to obtain lower prices. LESSONS LEARNED Wealth of diverse experience in contraceptive financing, procurement, and distribution The 14 Latin American countries reviewed for this study have their own unique set of economic, health, and develop­ ment conditions; regulations; and institutions. They are characterized by diverse and valuable experiences in contraceptive financing, procurement, and distribution. Enough similarities exist among the countries to suggest that lessons can be learned from the region. Further, USAID-graduated countries provide important perspectives on strengthening contraceptive procurement mechanisms without donor assistance, through both their successes and shortcomings. 4. In the Pfizer case, Peru was willing to pay a premium over what it could have obtained from UNFPA to get the product distributed to the district level. The ESKE/FamyCare costs were lower than UNFPA. Recently, however, UNFPA has negotiated a Most Favored Customer arrangement whereby Famy- Care agrees that if it offers the same goods under the same market conditions to another party, it will make that pricing available to UNFPA. Situations such as the Peru example may still occur under differing market conditions. 5. Price data were obtained from reference manuals, where available, and through personal interviews between DELIVER staff/consultants and official representatives for the different sectors in each country. See the references for a list of price manuals (FarmaPrecios). EXECUTIVE SUMMARY xv Experience from various countries in the region suggests that they must consider the following lessons to institute an effective procurement system: • Strengthen procurement management capacity to ensure effi ciency. Better management requires improvements throughout the procurement cycle. It begins with identifying and quantifying product requirements, including a budget review and approval process; a tender process that is either international or national, depending on the circumstances; a tender evaluation process and a post-tender contract management process; and a quality assur­ ance process to ensure that only products meeting the requirements are accepted for delivery. • Increase procurement transparency through good governance, management oversight, and public accountability. A number of strategies have been adopted, including using independent procurement agents (Peru, El Salvador, the Dominican Republic, and Honduras); establishing autonomous agencies to manage the procurement process (Chile and Costa Rica); separating procurement responsibility from quality control (Chile and Costa Rica); relying on external entities to audit the procurement process (Chile); and establishing clear and open information flows (Chile, Costa Rica, and Guatemala). • Implement regulations that allow unrestricted access to supplies from different sources, and institute centralized procurement, which will result in high value for money. Adopted strategies include comparing prices (El Salvador and Peru, although their processes are neither comprehensive nor systematic); informed buying (Peru and Costa Rica); negotiating with manufacturers (Peru); ensuring that budgets are funded at optimal time intervals to reduce cost; ensuring that the procurement process is independent of political consid­ erations (Chile); and removing regulatory barriers so countries have access to competitive prices. Strategies also include engaging in pooled procurement. The closest example of a regional pooled procurement model is the Eastern Caribbean Drug Service, under which the MOHs from nine separate islands pool their procurement of class A and B essential drugs. This service has achieved financial sustainability through an administrative fee, and has allowed member countries to gain significant savings. None of the countries in the analysis currently engage in regional pooled procurement, but Central America and the Southern Common Market—Mercado Común del Sur (MERCOSUR)—countries have taken important steps toward facilitating this model in the future. • Strengthen technical quality assurance capacity and access to testing laboratories to ensure safe and effi cacious methods. Quality control for contraceptives and medicines needs to be regulated throughout the procurement process: manufacturers should be prequalified; tenders should be correctly specified; drug registra­ tion should support public safety but should not create a barrier to supply (e.g., through regional drug registries); countries should conduct pre- and postshipment inspection and quality testing, either through their own laboratories or through regional or international laboratories; and procurement contracts should hold manufacturers liable for failed shipments and for disposing of failed lots of contraceptives. In addition, challenges that have arisen in graduated countries following donor phaseout relate to the preparation of adequate financial and procurement phaseout plans: (1) Mexico decentralized the procurement responsibilities for contraceptives to the state level after USAID’s departure, causing frequent stockouts, because most states were unprepared and unfamiliar with how to forecast, plan, and budget for their contraceptive needs; (2) nonprofi ts can be vulnerable to donor phaseout when they do not fully comprehend or believe USAID’s, or other donors’, intentions to end support (e.g., the Asociación Chilena De Protección De La Familia [APROFA] in Chile), or when they are prematurely forced to implement user fees to become sustainable (e.g., the Fundación Mexicana para la Planeación Familiar [MEXFAM] in Mexico and APROFA in Chile). Nevertheless, some NGOs, such as Bem-Estar Familiar no Brasil [BEMFAM] in Brazil and Asociación Pro bienestar de la Familia Colombiana (PROFAMILIA) in Colombia, were able to implement effective strategies for marketing, innovation, and fundraising and have thrived following donor phaseout. xvi OPTIONS FOR CONTRACEPTIVE PROCUREMENT: LESSONS LEARNED FROM LATIN AMERICA AND THE CARIBBEAN PROCUREMENT OPTIONS Range of options exist for countries at any stage of development–– efficient procurement requires sustained effort, informed decisions, and active public participation to ensure accountability. Ideally, public procurement should be efficient, transparent, and provide value for money while safeguarding quality and public safety. Based on the pricing and regulatory analyses, several key options have been identifi ed to improve effectiveness, transparency, and efficiency of contraceptive procurement strategies in the region. Th ese options have been grouped according to short-term, medium-term, and long-term phases, as countries in various stages of development toward sustained CS have differing priorities and face diff ering challenges. SHORT-TERM OPTIONS: • Develop long-term financial and procurement plans for eventual phaseout of USAID-donated contraceptives. • Develop the ability to accurately forecast national contraceptive needs, prepare and carry out procurement plans, place orders in a timely manner, and efficiently distribute commodities to all levels. • Consider working with UNFPA as a procurement agent while domestic procurement capacity is being devel­ oped and regulatory barriers are being addressed, and take steps to formalize this relationship (i.e., implement a memorandum of understanding). • Include expanded method mix in Essential Drug Lists (EDLs) and harmonize drug list for all public sector providers. MEDIUM-TERM OPTIONS: • Develop procurement capacity, including the ability to access competitive prices, forecast, order, and distribute at all public sector levels. • Monitor UNFPA performance and continue to refine and formalize this relationship. • Establish a protected budget line item or find creative ways of ensuring sustained funding for contraceptive commodities. • Begin to explore the option of informed buying by promoting the use of price comparison tools to identify and select the best purchase options. • Identify and implement a mechanism through which different countries can share their reference prices. • Enter into negotiations with new sources of supply, including UNFPA or other lower price providers such as NGOs and good manufacturing practice (GMP) generic manufacturers.6 • When conducting decentralized procurement, ensure that price negotiations are consolidated at the central level to capitalize on the benefits of national economies of scale. 6. GMPs are developed at both the company and industry levels.They may include a variety of practices that ensure quality, including quality assurance for raw materials; record keeping of substances throughout the manufacturing process; standards for cleanliness and safety; qualifications of manufacturing personnel; in-house testing; production and process controls; and warehousing and distribution. EXECUTIVE SUMMARY xvii • Examine the scope for addressing restrictive regulatory environments. • Make a case for exempting contraceptives purchased by the public sector from value-added tax (VAT) and duties. LONG-TERM OPTIONS: • Strengthen procurement capacity to enable staff to conduct informed buying, contract management, tendering, and competitive bidding. • Eliminate regulatory barriers that impede access to low-priced, quality reproductive health commodities (e.g., unnecessary tariffs, limits on access to a range of suppliers, bureaucratic delays throughout the procurement process, VAT on contraceptives). • Strengthen quality control mechanisms and develop capacity to guarantee effective and independent testing of contraceptives. • If a government does not have the capacity to guarantee effective, independent testing of contraceptives, conduct limited biddings, inviting only manufacturers that are prequalified by UNFPA, the World Health Organization (WHO), and the United Nations Children’s Fund (UNICEF). • Devise strategies for ensuring transparency throughout the procurement process, including making price and source information publicly available. • Develop a regional information system that regularly provides up-to-date price and provider information to be used throughout the procurement decision-making process. • Take steps to facilitate pooled procurement at the regional or subregional level. • When procuring at a decentralized level, ensure that qualified procurement staff are available at levels that have the capacity and funding necessary to effectively forecast their own needs; procure in a timely manner; access low-priced, quality commodities from reliable providers; and effi ciently distribute sufficient quantities to all levels. Details on the strategies being adopted by different countries in the region are elaborated throughout the text and in the more detailed country reports. xviii OPTIONS FOR CONTRACEPTIVE PROCUREMENT: LESSONS LEARNED FROM LATIN AMERICA AND THE CARIBBEAN INTRODUCTION OBJECTIVE AND APPROACH For more than three decades, countries in Latin America and the Caribbean (LAC) have relied on donations from international agencies such as the United States Agency for International Development (USAID) to meet the contraceptive needs of their populations. These donations are now being phased out: Peru and Ecuador are no longer receiving contraceptives from USAID, and Guatemala, El Salvador, and the Dominican Republic will stop receiving them in the very near future. Financing and procuring contraceptives will soon become the responsibility of all national governments in the region. USAID uses direct contracts to purchase the contraceptives that it donates to countries. Because funding for donated contraceptives does not come from the recipient country’s treasury, procurement by USAID and other international donors is not restricted by national laws. As governments take over the responsibility of procuring contraceptives, however, each country will need to consider its own national laws and norms that regulate the procurement of goods and services with public sector funds. The objective of this study is to assess the impact of different procurement regulations on the price of contraceptives in the LAC region and to identify viable strategies for countries to adopt in ensuring sustainable access to lower priced, quality contraceptives in suffi cient quantities. This analysis has involved the collection of quantitative and qualitative information on procurement and other relevant regulations and on the prices of contraceptives by method and source at the central level and at selected regional sites. Fieldwork was conducted by a joint DELIVER­ POLICY team in nine USAID-presence countries: Bolivia, the Dominican Republic, Ecuador,7 El Salvador, Guatemala, Honduras, Nicaragua, Paraguay, and Peru. In addition, DELIVER and POLICY conducted an analysis of procure­ ment procedures and policies in Brazil, Chile, Colombia, Costa Rica, and Mexico, where USAID Population Assistance has been phased out. Th e experiences of these countries can serve as important lessons for the nine Contraceptive security (CS) is said countries that are preparing for the phaseout of population support from to exist when people are able to USAID. choose, obtain, and use high-qual­ ity contraceptives whenever they The legal and regulatory portion of this analysis examines country-level need them. Improving the efficiency laws, regulations, and policies that affect the purchase of medicines, including and effectiveness of procurement contraceptive commodities, with the objective of assessing the feasibility is central to strengthened CS in the LAC region. of using different procurement mechanisms available in the region. Special attention was paid to national procurement laws that regulate the purchase of goods and services with public sector funds. The analysis focused not only on the written law, but also on actual procurement practices within the legal and regulatory framework. The pricing analysis involved the collection of price information for a wide range of contraceptive methods at various levels of the distribution system and from different sources in each country. This facilitated comparisons of unit prices available across sectors within a country and across countries at a given point in time. Th ese price 7. Ecuador is included in the list of USAID-presence countries, because, although it is considered a graduated country in terms of health and family plan­ ning, Ecuador has recently continued to receive some technical assistance in health from USAID. INTRODUCTION 1 comparisons and accompanying analyses can help policymakers understand the factors that contribute to diff erent contraceptive prices, as well as identify opportunities to save scarce resources by changing contraceptive procurement sources and mechanisms. This study highlights similarities and differences in the legal and regulatory framework and contraceptive prices across countries. It is intended to provide governments, social security institutes, and nongovernmental organizations (NGOs) with the information necessary to identify procurement mechanisms that are legally viable and result in the timely availability of low-priced, high-quality contraceptives. It can also help policymakers determine how changes in the legal and regulatory environment, pricing policies, and procurement mechanisms can result in better contraceptive prices, thereby improving access, availability, affordability, and equity in the contraceptive market. More detailed country reports have been produced for the nine USAID-presence countries, along with reports for the five USAID-graduated countries.8 METHODOLOGY Following is a summary of the methodology used in this two-part study: 1. Legal and Regulatory Analysis—data collection in each country consisted of three phases: • Review of country-level CS assessments and market segmentation analyses conducted by POLICY and DELIVER. • Review and analysis of laws and norms related to family planning (FP) and reproductive health (RH), particu­ larly those that affect the procurement of medicines and contraceptives. • In-depth interviews with key informants with experience in procuring medicines and contraceptives in the public sector, including the Ministry of Health (MOH) and Social Security Institute, international agencies such as USAID and United Nations Population Fund (UNFPA), and NGOs. 2. Pricing Study—data on import prices, namely, Cost Insurance Freight (CIF);9 costs incurred in clearing customs; and transportation to central warehouses were collected from government procurement units, UNFPA, NGOs (including social marketing organizations, private importers, and distributors), and service delivery points (SDPs). In countries with more difficult geographic access, cost of transport/distribution to SDPs was factored into the analysis. Retail prices, including pharmacy and distributor margins, were also collected. The pricing study adopted a methodology developed by the World Health Organization (WHO) and Heath Action International (HAI).10 The methodology was used to record contraceptive prices at client, wholesale (or regional), and central levels in the public sector; describe how “price components” (e.g., taxes, distribution/trans­ portation costs) affect prices; and reveal price variations between products, including brand-name and generics. For price comparisons to be meaningful, they need to compare the same product, in the same quantity, at the same point in the supply chain, at a given point in time, and, if possible, in similar geographic locations. For the purpose of this analysis, we are comparing unit prices at similar points in the supply chain, across countries, and across sectors within the same country. Price diff erences reflect the influence of, among other things, national and local procurement policies and laws and their application; differences in taxes and tariffs; national and local transportation and supply chain costs; and pricing policies of international suppliers and local distributors. Table 1 summarizes common terms used to describe prices at different points in the supply chain: 8. All of the citations for these documents are listed in the References section for this document and may be obtained directly from the JSI/DELIVER and Constella Futures/USAID | Health Policy Initiative projects (www.deliver.jsi.com, www.healthpolicyinitiative.com). 9. See table 1 for definitions of common terms used to describe prices at different points in the supply chain. 10. The World Health Organization (WHO), Health Action International (HAI). Medicines Prices:A New Approach to Measurement. Geneva, Switzerland: WHO/HAI; 2003. OPTIONS FOR CONTRACEPTIVE PROCUREMENT: LESSONS LEARNED FROM LATIN AMERICA AND THE CARIBBEAN 2 TABLE 1. PRICING TERMINOLOGY Price/Cost Ex factory FOB CIF Customs tariffs Other port clearance charges Ex port price Warehousing costs Import agent fees In-country transport costs Defi nition The price of a commodity as it leaves the factory gate, including all manufacturing costs and manufacturer’s profit. Free on board––the cost of the commodity loaded onto the ship or aircraft at the port of origin in the manufacturer’s country before being shipped. Cost insurance freight––the cost of the commodity, including the cost of insurance and transport to the port of destination or entry. Tariffs usually applied by customs on the declared CIF value of the commodity given on the bill of lading, the official invoice document accompanying the shipment.The tariff rate applied can vary from country to country and between products within a country. Other taxes can also be levied on imports as de facto tariffs. These charges include port handling and warehousing charges, agent’s fees, and other costs in getting the commodities through customs and the port. Usually accumulated costs incurred in getting the commodities out of the port of entry. Both public and private supply chains typically order in bulk, consolidating the commodities in a central warehouse before picking out individual items for an order, packing them, and shipping them to the next stage in the supply chain. For social marketing companies, a key cost incurred is the cost of repackaging bulk commodities into retail packing with social marketing messages. The role of private manufacturers’ agents is to facilitate the movement of goods through the port and into the public or private sector supply chain. Agent costs include the actual cost of importation, clearance, warehousing, and transporting to the next level, as well as agency fees and profits.These last two cost elements tend to be larger where there are local regulations requiring the use of agents and where competition is limited. From the central store to regional or district stores and on to local pharmacies and NGO and public clinics. Observation Not used in this study except for local Brazilian manufacturers. Most suppliers quote CIF rather than FOB prices. Obtained for public and NGO supply chains but not always for private supply chains because of commercial sensitivity. Tariffs are levied on contraceptives in Bolivia, Brazil, El Salvador, the Dominican Republic, Paraguay, and Peru, although several countries exempt donations and sometimes purchases by the public sector. We provide information on comparative port clearance costs. CIF plus customs tariffs plus port clearance costs. For social marketing, these costs represent an important component.We typically add other social marketing overhead costs here as well. For the public sector, these costs may not be explicit, while for the private sector, they coincide with distribution margins (see below). CIF plus customs tariffs plus port clearance costs plus warehouse costs plus agent’s costs plus fees and profit.This fee can also include local transport costs if delivered directly to districts or service delivery points. Comparative information on transportation costs are available for several countries from the private and NGO sectors but not the public sector. INTRODUCTION 3 TABLE 1. PRICING TERMINOLOGY (CONTINUED) Price/Cost Distributor’s margins Retail margins Sales price UFV Defi nition In larger countries, an intermediate private wholesaler or distributor may be responsible for moving commodities from central to regional locations for onward sale to pharmacies. In the public sector, this function may be fulfilled by regional or departmental medical stores, sometimes with explicit distribution charges being levied. In some supply chains, the central warehousing costs may be part of the distributor’s margin. In the private sector, these are the margins pharmacies will charge. In the NGO and public sectors, there may be some cost recovered by the NGO or public clinic. The final price actually paid by the client for the commodity reflecting all of the above costs. Unidad de Fomento de Vivienda (UFV) is an accounting unit that the Central Bank of Bolivia changes daily to adjust the national currency (Boliviano) for inflation. It facilitates the financing of households and all official actions, including contracts, that require the Boliviano to maintain its value with respect to changes in the rate of inflation. Payments and charges are made in Bolivianos according to the daily UFV. Observation While several countries have some form of price control, their application is uneven with some variation in distributor and retail margins observed.The more levels within a supply chain, the greater the cumulative effect of these margins on the final price. In-country public sector supply chain costs frequently were not available because few if any public systems assign explicit costs to their supply chains, and a costing exercise was beyond the present scope of work. Where necessary, NGO costs were used as a proxy. Small nonrepresentative samples of pharmacies were made to get some perspective on price variation within each country. This unit is used only in Bolivia. REPORT ORGANIZATION This report synthesizes the findings on procurement regulations and contraceptive pricing from work in 14 LAC countries. We first present a summary of the regulatory environment, followed by an analysis of the contraceptive procurement options being adopted across the region. Next, we look at prices for contraceptives in each country and the reasons for variations within and between countries. We then synthesize regional lessons learned from procurement before presenting regionwide and country-specific recommendations in the short, medium and longer term. OPTIONS FOR CONTRACEPTIVE PROCUREMENT: LESSONS LEARNED FROM LATIN AMERICA AND THE CARIBBEAN 4 LEGAL AND REGULATORY FRAMEWORK A SUPPORTIVE NATIONAL POLICY ENVIRONMENT The countries under study have well-established policy frameworks that support the rights of their citizens to plan their families. Constitutions, population policies, RH plans, and health laws include mandates and written commitments that directly or indirectly support FP. All the countries in this report have demon­ strated their commitment to supporting FP through concrete actions as well as by providing FP services to the poorest and most vulnerable segments of their population. Additionally, all have adhered to or ratifi ed various international declarations and treaties––including the Millennium Declaration, the Convention on Elimination of Discrimination against Women, and the 1994 International Conference on Population and Development (ICPD) Programme of Action––that clearly establish citizens’ rights to health, particularly maternal-child health, and ensure access to RH services. These countries consider access to modern methods of contraception an important strategy to improve the general health of their populations, and more specifically, to reduce maternal, perinatal, and infant mortality. Th e health benefits of FP provide a strong argument in support of governments allocating the funding necessary to procure and distribute contraceptives to all those who need and want them. PUBLIC SECTOR FUNDING FOR CONTRACEPTIVES In the face of donor phaseout, some governments, including those of El Salvador, Guatemala, the Dominican Republic, and Peru, have created line items in their national budgets to allocate funding for contraceptive procurement. In 1999 in Peru, an MOH decision to guarantee the financing, purchase, and availability of medicines and inputs necessary to implement their vertical programs (now called “health strategies”) has led to annual budgetary allocations for the purchase of contraceptives. In Paraguay, the government has passed legislation to earmark funds for contraceptives in its national budget. In the meantime, for the fi rst time ever the MOH of Paraguay set aside U.S.$260,000 for the purchase of contraceptives through UNFPA in 2006. In the Dominican Republic, no formally established mechanisms exist for assigning money for the purchase of contraceptives and the availability of public sector resources is left to the discretion of government officials. In Guatemala, under an agreement with UNFPA, the government set aside public sector funds annually during 2002–06 to create a fund for the purchase and distribu­ tion of contraceptives, which will begin in 2007. During this fi ve-year period, UNFPA used funds from Holland and Canada to purchase and donate contraceptives to the MOH. In addition, future funds will come from a tax levied on the purchase of alcoholic beverages, 15 percent of which was set aside by Congress to fund the Reproductive Health Program. In Ecuador, funding for contraceptives for all women of repro­ ductive age is protected and guaranteed under the Law of Free Maternity Country Public sector funding for contraceptives Bolivia No Ecuador Yes El Salvador Yes Dominican Yes, at discretion of Republic government officials Guatemala Yes, as of 2007 Honduras Yes Nicaragua No Paraguay Yes, as of 2006 Peru Yes Brazil Yes, but not earmarked Chile Yes Colombia No Costa Rica Yes, but not earmarked Mexico Yes and Infant Care (Ley de Maternidad Gratuita y Atención a la Infancia). LEGAL AND REGULATORY FRAMEWORK 5 Figure 1. Family Planning Client Profiles in Peru’s Ministry of Health, 1996–2004 100 54 47 36 20 25 29 26 28 35 200420001996 90 80 70 Pe rc en ta ge 60 50 40 30 20 10 0 Year Poorest, lower middle Middle Highest, upper middle Despite the fact that some countries in Latin America have budget line items, government commitments, and/or recent practices for allocating money for contraceptive procurement, with the exception of Ecuador, they do not give FP a protected status that would guarantee availability of funding every year. Absent this protected status, funding for contraceptives depends on the discretion of policymakers, the fiscal climate, and the perseverance of skilled family planning advocates. In Peru, El Salvador, and Guatemala,11 the Social Security Institutes include FP within their basic package of services. Nevertheless, a significant proportion of social security beneficiaries rely on other sources––for example, the private sector and MOHs––for contraceptives. In Nicaragua, although the National Social Security Institute (INSS) includes contraceptives in the basic package, the Provisional Medical Suppliers (EMPs, Empresas Medicas Previsionales) do not generally stock supplies and therefore do not generally offer FP to affiliates or their benefi ­ ciaries. Although the INSS covers 11 percent of the population, 43 percent of INSS’s eligible benefi ciaries obtain their FP methods from the MOH at no charge.12 In El Salvador in 2002, for example, only 51 percent of women (ages 15–44) covered by social security went to social security facilities for their contraceptives, while more than 25 percent obtained contraceptives from the Ministry of Public Health and Social Assistance (MSPAS, Ministerio de Salud Pública y Asistencia Social).13 In addition, the Social Security Institutes in Paraguay and the Dominican Republic do not provide contraceptives to their beneficiaries on a regular basis, and their supplies depend largely on MOH donations. To achieve CS, governments need to ensure that sufficient public sector resources are avail­ able. Using public resources has the potential to improve equity if those resources are used to provide basic services to the neediest populations. Achieving these equity goals requires that emphasis be placed on improving the segmentation of contraceptive markets, MOHs targeting their resources to serve the poor, Social Security Insti­ tutes being responsible for their beneficiaries’ FP needs, and those with the ability to pay for services obtaining contraceptives from NGOs or the private commercial sector. Often, limited public sector resources are unfairly consumed by individuals who have a greater ability to pay. For instance, a comparison of Peruvian MOH clients by standard of living index (SLI) quintile between 1996 and 2004 indicates that women with a greater ability to pay have bene­ fited disproportionately from free MOH contraceptives. Th e propor­ tion of MOH FP clientele from the two lowest quintiles declined by 7 percent between 1996 and 2000 (see fi gure 1), while use by women from the upper middle and wealthiest quintiles (the nonpoor) increased by 2 percent. Between 2000 and 2004, these trends 11. In Guatemala, FP was reinstated within the basic package of services provided by the IGSS in September 2005. Between 2003 and 2005, the FP services provided by the IGSS were restricted to postpartum women for a period of 30 days. 12. Comité de la Disponibilidad Asegurada de Insumos Anticonceptivos de Nicaragua (DAIA), John Snow, Inc./DELIVER.Abramson,Wendy B., Sharon Soper, Leslie Patykewich,Ali Karim, David Sarley. 2005. Estudio de la Segmentación del Mercado de Nicaragua.Arlington,Virginia: John Snow, Inc./DE­ LIVER para la Agencia de los Estados Unidos para el Desarrollo Internacional. 13. POLICY Project. Segmentación de mercado de la planificación familiar en El Salvador, June 2005. OPTIONS FOR CONTRACEPTIVE PROCUREMENT: LESSONS LEARNED FROM LATIN AMERICA AND THE CARIBBEAN 6 continued, with the poorest and lower middle quintiles representing only 36 percent of MOH clientele, and the upper middle and wealthiest quintiles increasing to represent 35 percent of the MOH clientele. To maintain a healthy and growing private sector that can alleviate demands on the limited resources of the public sector, free or subsidized commodities should be targeted to low-income and hard-to-reach populations. Th e various sectors must coordinate their activities to ensure that all individuals are covered while maintaining an environment in which NGOs and the commercial sector can fl ourish. Through achievement of better prices and savings from more streamlined procurement, NGOs and the private sector can begin to help cover contraceptive needs in a cost-effi cient manner. This will ensure that individuals with a greater ability to pay begin to look to other providers for their commodities, enabling the public sector to focus on the poorest quintiles. LAWS THAT GOVERN THE PROCUREMENT OF MEDICINES AND CONTRACEPTIVES All of the countries under study have laws that regulate the purchase of goods and services with public sector funds. The laws apply to all government agencies and institutions, including Social Security Institutes, and to most transactions in which public sector funds are used. The following sections describe these laws, particularly as they pertain to the procurement of medicines, medical supplies, and contraceptives. Ideally, public procurement should be efficient, transparent, and provide value for money while safeguarding quality and public safety. We examine the laws in place against these criteria for good procurement. PROCUREMENT MODALITIES: FROM PUBLIC TENDER TO DIRECT PURCHASE National procurement laws clearly establish the modalities to be used for procuring goods with public sector resources. The emphasis in much of Latin America is to protect the public interest by defining procedures that try to reduce potential for corruption. At the same time, an underlying preference promotes local distributors and, in some cases, local manufacturers. Procedures include public tenders (open to all providers), restricted tenders (in which smaller numbers of providers are invited to participate), and direct contracts with a specific provider. Th e most common procurement mechanism that governments use to purchase medicines is the public tender, which is a long, multistep process that is often limited to local suppliers. In certain circumstances, however, governments can circumvent the public tender process; these instances are discussed in the next section. Direct purchase through a specific provider generally can be used only if there is a patent in effect, if a tender has yielded no viable options, or in the case of a public health emergency (e.g., stockout of supplies). EXCEPTIONS TO PUBLIC TENDER There are several general exceptions to the use of public tenders for the purchase of goods with public sector funds. In all the countries—except the Dominican Republic—government purchases made within the context of international or multilateral agreements, contracts, or treaties, and with funding from loans or external sources (donations or otherwise), do not fall under the jurisdiction of public sector procurement laws. Most of the countries also allow for exceptions in emergency situations. In addition, in Paraguay, El Salvador, Nicaragua, Honduras, and Bolivia, transactions between public entities fall outside the purview of this law, thus facilitating pooled (joint) procurement of medicines and contraceptives by the MOH at the central level or for health facilities at the decentralized level. Exceptions to public tender— • Purchases in the context of international/multilateral agreements and contracts (all countries but the Domincan Republic) • Purchases made with funding from loans or external sources (International Development Bank, World Bank) • Emergency situations (all countries) • Transactions between public entities (Paraguay, Nicaragua, Honduras, El Salvador, Bolivia) • Clear price advantage (Nicara­ gua, Paraguay). LEGAL AND REGULATORY FRAMEWORK 7 In Paraguay, the government can circumvent public tenders for “technical reasons.” In Nicaragua, purchases related to “public interest” can also avoid public tenders. In the short term, these exceptions have potentially practical implications for contraceptive procurement in both countries because they permit direct purchases to obtain better commodity prices. In the long run, these exceptions could provide justification for revising the law and formalizing the option to circumvent public tenders when better priced, quality commodities can be obtained. In Guatemala, public sector health establishments procure medicines through a prequalifi cation mechanism, which does not require public tender. Under this mechanism, health establishments that belong to the Ministries of Health and Defense and the Guatemalan Social Security Institute (IGSS, Instituto Guatemalteco de Seguro Social) can directly purchase medicines and medical and surgical supplies from a short list of prequalifi ed providers at preset unit prices based on guaranteed future bulk procurement. The providers are selected annually by the Contracts and Procurement Office in the Ministry of Finance through a competitive bidding process, in which international and national providers are eligible to participate, on the basis of product quality, ability to meet tech­ nical specifications and quantity requirements, and price. Technically, contraceptives could be purchased through this mechanism; however, at present, the MOH plans to continue to purchase contraceptives through UNFPA. Regardless of the mechanism or exception used, all medical products being offered must be registered in all coun­ tries, which is a necessary although often time-consuming process, to ensure that the product is effective, safe, and of good quality. It is important to note that the registration process, while a necessary step, can often be used to favor special interests or give unfair preference to select providers. An important element of eff ective procurement includes a transparent, efficient, and accountable registration process. INTERNATIONAL TENDERS AND PROCUREMENT: A LEGALLY VIABLE OPTION? There is a clear bias toward procuring goods and services from local suppliers in all of the countries. Procure­ ment laws in Peru, Nicaragua, and the Dominican Republic do not mention international tender as an option within the provisions of the law. In the other six countries (El Salvador, Paraguay, Guatemala, Ecuador, Bolivia, and Honduras), international tenders and procurement are legal under special circumstances and conditions. In El Salvador, the government can issue an international tender if “the nature and specialty of the goods” justifi es it. Even under these circumstances, however, the law treats an international supplier’s medical products like those of local suppliers, requiring them to be registered within the country, which can cost up to U.S.$700 and take three to six months. In Paraguay, the law permits international tenders if market studies indicate the absence of local suppliers for a specific product or if international suppliers can offer prices that are at least 10 percent less than their local suppliers. The law also establishes a preference for local products by requiring that international suppliers have at least five years of local representation in the country. Similar to Paraguay, Guatemala’s law allows international tender in the absence of local production of the product or on the basis of prices that are at least 15 percent less than local prices, after customs fees, tariffs, and insurance costs have been factored in. In Ecuador, there are no apparent restrictions While national procurement laws to international procurement. With decentralization, however, each area clearly favor purchase from local purchases its medicines locally, and there has been no attempt to explore suppliers, most countries allow bulk procurement through local or international tender. In Bolivia, the international purchases through law permits international tender for purchases that exceed 15 million UFV UN agencies (UNFPA and UNDP) (which are converted into Bolivianos). However, products with a greater that serve as procurement agents. composition of local inputs (labor, raw materials) receive greater price UNDP does not negotiate prices, rather it manages the bidding and advantages, thereby giving them a competitive edge over international the general process on behalf of products in a tender process. In Honduras, the original law contained a the government. In contrast, UN-mechanism that favored national bidders except in the cases of bilateral FPA has procurement contracts or multilateral agreements or when a project was supported with external with worldwide contraceptive funds. Before the Central American Free Trade Agreement (CAFTA), to manufacturers. OPTIONS FOR CONTRACEPTIVE PROCUREMENT: LESSONS LEARNED FROM LATIN AMERICA AND THE CARIBBEAN 8 participate in public tenders, foreign firms were required to act through a local agent (at least 51 percent Honduran owned); this requirement was eliminated when CAFTA went into eff ect. Although the legal framework in most of the countries under study does not explicitly prohibit international procure­ ment, the requirements and conditions that international suppliers are expected to follow are restrictive and, at times, prohibitive. Furthermore, regardless of the legality of international tenders, none of the nine USAID-presence countries have public sector experience in directly purchasing medicines or contraceptives on the international market. In Bolivia and Ecuador there are NGOs with experience purchasing contraceptives on the international market. CONTRACEPTIVES AND THE ESSENTIAL DRUG LIST The essential drug lists (EDLs) of the MOHs in Peru, El Salvador, Nicaragua, the Dominican Republic, Guatemala, and Bolivia include all hormonal contraceptives. In Peru and the Dominican Republic, the EDLs also include condoms and intrauterine devices (IUDs). In the majority of these countries, the EDLs are restrictive; if the drug/medicine (or contraceptive) is not included on the list, it may not be purchased with government funds. As a result, the inclusion of all contraceptives is vital to ensuring that governments procure them. In Ecuador, the EDL is restrictive in nature and includes only oral contraceptives and IUDs. However, in the case of other contraceptives, the MOH can purchase products that are not on the EDL because the Law of Free Maternity and Infant Care guarantees their availability at SDPs and has a different and wider EDL that includes all contraceptive methods. Ecuador’s Social Security Institute (IESS, Instituto Ecuatoriano de Seguro Social), does not have similar flexibility and can only purchase those contracep­ tives named on the national EDL. In Paraguay, neither the EDL for the MOH nor the Social Security Institute (IPS, Instituto de Previsión Social) includes contraceptives. Because the Ministry’s EDL is not restrictive, this exclusion has not been a barrier to purchasing contraceptives. However, IPS cannot purchase medicines that are not included in its EDL and they can only provide contraceptives to its beneficiaries if they are donated by the MOH. The inclusion of contraceptives on a country’s EDL is an important step to achieving CS, particularly if the list is restrictive. However, a drug’s inclusion on the EDL does not in itself guarantee its availability in suffi cient quantities in health establishments. PROCUREMENT PRACTICES AND MECHANISMS The timely and uninterrupted availability of high-quality contraceptives in the public sector is essential to achieving CS, particularly among those in the lowest socioeconomic quintiles. As donors phase out contraceptive donations in Latin America, governments must prepare to assume responsibility for procuring contraceptives. Price and qual­ ity of products are important factors in this process. In addition, the actual capacity of the public sector to procure and deliver contraceptives must be considered when decisions are made about how to improve procurement prac­ tices. That said, this document will not address whether in-land transportation and distribution is better handled by a private company already operating within the country or better handled by the MOH. The intent of this analysis was not to gather data on private distribution options, especially because this type of decision will depend on a number of factors, including country infrastructure, government capacity, legal framework, and cost. PROCURING IN BULK: GOOD FOR EFFICIENCY A country’s ability to obtain the best possible price for a specific product, including medicines and contraceptives, depends in large part on the volume being purchased. El Salvador, Honduras, Guatemala, Peru, and Nicaragua have systems in place for national centralized purchase or centralized price negotiations of medicines for the entire public sector health system, thereby realizing significant economies of scale and associated savings. In Peru, for example, a centralized (pooled) purchase of medicines for vertical health programs in 2003 yielded savings of approximately U.S.$9.2 million. LEGAL AND REGULATORY FRAMEWORK 9 In 2003, El Salvador initiated a new process for bulk procurement of medicine for its 27 individual health estab­ lishments (SIBASI, Sistema Básico de Salud Integral). Before the new system, each SIBASI purchased medicines and supplies using its own budget. Under that system, there were 27 tenders, 27 contracts with vendors, and 27 payments, and no economies of scale. In 2003, MSPAS introduced two new mechanisms for procuring medicines: • MSPAS would negotiate prices with suppliers based on the total volume of medicines required by the 27 SIBASI establishments. Each SIBASI would then purchase its own commodities at the negotiated price (one tender, 27 contracts, 27 payments). • MSPAS would use financial resources provided by each SIBASI to undertake one pooled purchase of the total volume of medicines required within the public sector health system (one tender, one contract, one payment). Both mechanisms provide opportunities to obtain low prices based on bulk procurement. While these opportu­ nities were successfully used to procure some low-priced generic medicines, bulk procurement of contraceptives tended to include higher priced generic-brand products from local suppliers. Consequently, MSPAS is currently using the option of procuring contraceptives through UNFPA. Guatemala’s prequalification mechanism, described in the previous section, constitutes yet another mechanism through which public sector facilities (Ministries of Health, Defense, and IGSS) purchase medicines at prenegoti­ ated low prices that are based on bulk procurement. Box 1 describes another efficient system of pooled national procurement through the Chilean autonomous purchasing agency (CENABAST, Central de Abastecimiento). A similar example is the Nicaraguan Center for Health Supplies (CIPS, Centro de Insumos Para la Salud); however, CIPS procures only medicine (not contraceptives) at this point. The Dominican Republic’s Program of Essential Medicines (Programa de Medicamentos Esenciales, PROMESE) purchases medicines and supplies for all MOH (Secretaría de Estado de Salud Pública, SESPAS) establishments, thereby achieving savings of between 56 and 1,017 percent for individual medicines.14 However, the Dominican Social Security Institute and the armed forces, which also belong to the public sector, purchase their medicines separately, thereby missing out on an opportunity for even further savings that could be achieved by purchasing through PROMESE. Furthermore, SESPAS directly procures medicines and drugs for special programs, including tuberculosis (TB), vaccines, antiretrovirals (ARVs), and contraceptives. Procurement of medicines in Bolivia and Ecuador occurs at a decentralized level. For example, in Bolivia, 314 municipalities individually purchase the medicines necessary to provide services under the Universal Mother and Child Health Insurance Law. In Ecuador, purchases take place at the level of the 167 health areas. Because each purchase is small in quantity and noncompetitive in nature, municipalities and health areas both pay very high prices to local suppliers. PUBLIC SECTOR CONTRACEPTIVE PROCUREMENT MECHANISMS The MOHs in Guatemala, El Salvador, Peru, the Dominican Republic, Paraguay, Honduras, and Ecuador have used public sector funds to purchase and distribute contraceptives in recent years. In Paraguay, the MOH has supplemented UNFPA and USAID donations by purchasing small quantities of contraceptives each year since 2003 from local suppliers (except in 2005). In Ecuador, contraceptives are purchased by individual health areas from local suppliers. In general, decentralized procurement without international competitive tendering tends to be the most expensive procurement mechanism, in terms of the average unit purchase price. The smaller scale of these orders, the restriction 14. Sarley, David,Wendy Abramson,Varuni Dayaratna, Jay Gribble, Carlos Lamadrid, Cristian Morales, Nadia Olson, Nora Quesada, and Verónica Siman Betancourt. 2006. Contraceptive Procurement Policies, Practices, and Options in the Dominican Republic. Arlington,V.A.: DELIVER, and POLICY II, for the U.S. Agency for International Development. 10 OPTIONS FOR CONTRACEPTIVE PROCUREMENT: LESSONS LEARNED FROM LATIN AMERICA AND THE CARIBBEAN on international competition and the consequent oligopolistic position of regional suppliers, and the disecono­ mies of scale associated with smaller fragmented domestic markets all contribute to higher unit prices. As a result, countries such as El Salvador, Peru, and the Domini­ can Republic have taken a diff erent approach. They signed special agreements or memoranda of understanding (MOUs) with UNFPA establishing the agency as a procurement agent, thus enabling them to purchase quality contracep­ tives at very low prices supplied by reliable sources. Th is arrangement permits these countries to obtain contraceptives at the competitive prices offered in the international market without having to directly issue an international tender or procure directly from international suppliers, both of which have legal restrictions. However, one of the more difficult requirements of the UNFPA agree­ ment is that MOHs must transfer the entire payment for the contraceptives being purchased to UNFPA before the actual procurement. Following the transfer, UNFPA proceeds with the procurement. The political will and fiscal ability to commit the necessary sums of money upfront for contraceptives is absent in some countries, making this requirement a potential barrier to bulk procure­ ment through UNFPA. Additionally, UNFPA charges countries a 5 percent administrative fee. Even with these fees, as the price analysis shows later in the report, UNFPA prices are often lower than other available prices. BOX 1. IMPROVING EFFICIENCY AND TRANSPARENCY THROUGH POOLED PROCUREMENT OF CONTRACEPTIVES BY A SEMI-AUTONOMOUS ENTITY CENABAST is Chile’s semiautonomous public agency that manages contra­ ceptive procurement for the Ministry of Health, with decision making and planning done at the decentralized level, but coordinated by the central level. CENABAST purchases contraceptives and essential drugs from local repre­ sentatives of international companies and local producers and, occasionally, directly on the international market. Given the transparency and high levels of competition in the Chilean economy, local prices are close to international prices.Therefore, international procurement is infrequent. CENABAST procures and distributes contraceptives to 26 regional health authorities, which in turn distribute the commodities to public sector SDPs. In Chile’s decentralized health system, district health offices have the latitude to purchase from whichever source offers the best service or price.The fact that all the districts continue to use CENABAST is a testimony to the quality of its service. CENABAST’s procurement process is straightforward, efficient, and transparent. CENABAST receives consolidated information on contraceptive requirements for the entire public sector health system.This information originates at health facilities. Using this information and accompanying technical specifications about necessary commodities, CENABAST calls for bids that may be open to foreign firms, but in most cases are directed only to local suppliers who are preapproved and registered by the Public Health Institute (ISP).These preapproval and registration processes serve as mechanisms of quality control. CENABAST’s procurement management cycle includes nine major steps: (1) once a year the first line facilities submit their commodity needs for the following year to the health district; (2) the health district submits the demands to cover the needs of the health facilities under its jurisdiction; (3) the Women’s Program of the Macro-Networks Department, with the Women’s Health Department, consolidates the demand; (4) the Women’s Program of the Macro-Networks Department with direction from the Women’s Health Department sends a memo to CENABAST with all the needed technical specifications to procure the commodities: quantity, reference prices (based on past bids), and estimated delays; (5) CENABAST, with the consolidated demand, calls for bids, which may be open to foreign firms, but in most cases, are only addressed to local firms; (6) ISP—the Public Health Institute—and authorized bidders are invited to participate; (7) ISP ensures that the products are of good quality; (8) CENABAST pays the provider and takes responsibility for distribution to the health services; and (9) health services distributes to the first line facilities under its jurisdiction. Centralized pooled procurement through CENABAST from registered providers ensures that health facilities receive low-priced high-quality con­ traceptives. CENABAST’s autonomy and external auditing procedures also ensure transparency. Stakeholders in Chile expressed general satisfaction with the prevailing procurement process for medicines and contraceptives.The only weakness identified pertained to delays in consolidating demand and purchasing, which seem to be related to the availability of funding. However, funding for the FP policy was included in the national budget this year. Hence, lack of funds should no longer be a bottleneck to procuring contraceptives in a timely and efficient manner. LEGAL AND REGULATORY FRAMEWORK 11 Contraceptives that are purchased with public sector funding through UNFPA must adhere to regulations estab­ lished by national procurement laws. They are subject to import taxes, value-added taxes (VATs), and other taxes, except when a national law or decree explicitly exempts such taxation for certain imported goods. In El Salvador, for example, contraceptives purchased through UNFPA with public sector funds are exempt from import taxes if they are introduced into the country using a Presidential Decree (Franquicia Presidencial), although the VAT still applies. Furthermore, UNFPA contraceptives must be registered within El Salvador through the national-level medical and pharmaceutical product registry. Under current agreements with UNFPA, national governments are responsible for paying transport and insurance costs; receiving, inspecting (the quality), unloading, storing, and distributing the product; and completing all customs requirements, product registration, and other bureaucratic procedures. Although the option has not been used in Latin America, another mechanism under which UNFPA can act as procurement agent is through pooled donor funds associated with Sector Wide Approaches (SWAps). Th e success of these mechanisms elsewhere has depended on either the MOH’s ability to strengthen its own procurement capacity (Bangladesh) or appoint procurement agents (Ghana) to realize gains from lower international contracep­ tive prices. Where national procurement regulations are less restrictive and the MOH has the capacity, such as in Peru, it can engage in informed buying and obtain prices similar to those obtained by UNFPA. Finally, procuring through IPPF has been discussed several times in the past as a potential procurement option for the LAC region. Although IPPF seems to offer competitive prices, similar to those offered by UNFPA, the procurement mechanism poses some barriers for institutions. Generally, this mechanism requires that institutions establish a procurement agreement with the local IPPF affiliate, which in turn would contact IPPF and place the order. Since IPPF is a private NGO, however, compared to UNFPA or the Pan-American Health Organization (PAHO), which are both part of the United Nations (UN) system, it is required to meet taxation requisites and therefore may not in fact be competitive for the public sector. Table 2 summarizes the advantages and disadvantages of different procurement options in order of increasing unit CIF prices. UNFPA, with its bulk purchasing at international prices, is likely to generate the lowest CIF prices, while fragmented (unconsolidated) purchasing in decentralized health care systems is likely to incur the highest unit cost. 12 OPTIONS FOR CONTRACEPTIVE PROCUREMENT: LESSONS LEARNED FROM LATIN AMERICA AND THE CARIBBEAN TABLE 2. ADVANTAGES AND DISADVANTAGES OF DIFFERENT PUBLIC SECTOR OPTIONS FOR OBTAINING CONTRACEPTIVES Procurement Mechanism 1. UNFPA 2. IPPF Key Features and Countries (public sector) currently using the option UNFPA acts as a procurement agent for MOH. Countries: Peru, El Salvador, Honduras, and the Dominican Republic; Nicaragua, Guatemala, and Paraguay do not yet have agreements Local NGOs that are affiliates Advantages –Because of global bulk purchasing, MOHs can obtain generic high-quality contraceptives from reliable suppliers at very low international prices while overcoming national procurement restrictions on ICB. Disadvantages –UNFPA charges a 5% procurement fee, with payment required upfront. –Only delivers to the central level, passing the responsibility for customs clearance and delivery to the MOH, thereby adding further costs. –Because of great distances, delays make it all the more challenging for countries to accurately forecast their needs and meet those needs. –Using local IPPF affiliates helps the –Not clear if the public sector is willing of IPPF procure through organizations to generate additional to contract to NGOs or if NGOs regional IPPF offices. income, as a result of procurement activity. have the cash flow to sell to the MOH. Countries: None –IPPF offers very competitive prices, Purchases may be subject to VAT. sometimes lower than UNFPA, and –Unlike exceptions made for UNFPA, high-quality products. It also guarantees MOH cannot necessarily establish continuity of brands, as they offer the procurement agreements with NGOs or same products that USAID and UNFPA IPPF affiliates, because normally, by law, have donated to the region for years. they have to go through tenders, just like –Products can be brought in any other local supplier, if they want to country in several scheduled get a contract awarded. shipments, throughout the year, giving –NGOs do not have a financial “cushion,” governments the ability to gather in case a government or institution fails funds throughout the year. to cover the total cost of the quantities procured at a certain point in time. 3. USAID Donors obtain contraceptive –Commodities are free, reducing the –Most donors are phasing out donations, and other methods from their own burden on the MOH budget. MOH therefore this is not a sustainable option bilateral suppliers and sometimes does not need to take procurement over the medium to long term. donorsa through UNFPA, and provide actions and decisions. No taxes are –Historically higher cost suppliers have 4. UNDP them to the MOH. Countries: Nicaragua, Guatemala, Paraguay, and Bolivia UNDP acts as a procurement agent in Honduras for contraceptive purchases made through the IBRD loan. Countries: Honduras paid. been used although this is changing with untied aid. –Needs careful coordination between donors to avoid duplication. –MOH has less control of commodities. –Donations do not keep pace with growing demand. –Allows international bidding and avoids restrictions associated with national procurement regulations. –UNDP/IAPSO and UNFPA have now set up a system in which UNDP clients may access condoms through the IAPSO Web Buy e-procurement system.This may be extended to other RHCs. –UNDP is not a specialized FP procurement agent and appears to have procured at prices higher than UNFPA, probably because of the lack of bulk purchasing. –UNDP does not always select prequalifi ed suppliers. LEGAL AND REGULATORY FRAMEWORK 13 TABLE 2. ADVANTAGES AND DISADVANTAGES OF DIFFERENT PUBLIC SECTOR OPTIONS FOR OBTAINING CONTRACEPTIVES (CONTINUED) Procurement Mechanism 5. International Key Features and Countries (public sector) currently using the option None of the nine countries Advantages Disadvantages –The MOH has greater autonomy –International bidding may contravene competitive studied have undertaken around procurement decisions national procurement laws. bidding by international bids; Peru has subject to the application of IBRD –Familiarity with IBRD/IDB procurement the MOH, diversified its supply sources procurement rules.This can lead to regulations may be beyond the capacity including SWAp to include a generic Indian manufacturer with a local representative. In other economies of scale and lower prices. of the MOH unless they have prior experience with international bidding. 6. National regions, donors pool resources and make them available to the MOH for ICB as part of sectorwide programs. Most LAC countries have –Requires strong local procurement capacity (including the ability to efficiently carry out quality assurance measures). –Local suppliers, including local –Can contribute to cartelization of procurement specific regulations governing manufacturers and agents, know supply, reduced competition, and national procurement local conditions better, can arrange higher prices because international that limit the scope for for local delivery, and can foster local suppliers need to operate through local international tender and commerce. intermediaries, and commodities may be require purchasing only from local agents. –Where there is local production capacity, delivery lead times can be subject to VAT. –Local manufacturers may be Countries: Peru, Paraguay, shorter and orders can be placed in more expensive than international Nicaragua, and Brazil smaller volumes competitors; this is less likely an issue in open economies like Chile and Costa Rica but a bigger issue in protected economies like Brazil. –Local suppliers, if not prequalified by WHO, do not necessarily provide the same level of quality that internationally certified suppliers are able to guarantee. 7. Local In decentralized health –Decision making stays at the lowest –Procurement volumes are small and Procurement systems, contraceptives level (closest to the client), delivery is local suppliers are used, usually resulting and essential medicines are efficient, and prices include the cost of in much higher unit prices being paid, sometimes procured at a local level. Countries: Bolivia and Ecuador local delivery. including possibly VAT. Source: Interviews with key players. Note: IAPSO = Inter-Agency Procurement Services Office; IBRD = International Bank for Reconstruction and Development; ICB = international competitive bidding; IDB = Inter-American Development Bank; RHC = Reproductive Health Commodities. a. USAID and other bilateral donors do not and cannot function as procurement agents for the public sector as do UNFPA, UNDP, and IPPF. For further detailed study, a description of the main contraceptive procurement options being used in each country is included at the end of the report in annex 1. For all 14 countries studied, annex 2 presents information on drug supply systems, contraceptive financing, and procurement. Annex 3 summarizes the regulations governing the purchase of supplies with public funds. 14 OPTIONS FOR CONTRACEPTIVE PROCUREMENT: LESSONS LEARNED FROM LATIN AMERICA AND THE CARIBBEAN CONCLUSIONS: LEGAL AND REGULATORY ENVIRONMENT All of the nine presence countries have well-established policy frameworks, including health laws that support the rights of their citizens to plan their families. As international donations of contraceptives are phased out, most of the countries examined have begun the process of earmarking public funds for their future procurement. Several countries, including El Salvador, Guatemala, and Peru, have allocated public sector funding for the purchase of contraceptives. Ecuador has gone further by providing legal protection for these funds to ensure the availability of contraceptives for the people who need them. Presently, only Nicaragua and Bolivia do not provide public sector funding for contraceptives. Despite policy commitments by all of the countries to provide FP services to their citizens, a comparison of legal and regulatory frameworks illustrates a range of legal options related to the procurement of health commodities. These options range from slightly more open environments in which a country can search for a lower price in local or international markets to more restrictive environments in which a country must favor a local distributor or manufacturer. There are an array of laws in all the countries to regulate the purchase of goods and services with public sector funds. Most countries have explicit procurement regulations that limit the scope of purchasing from international suppliers. Countries have used exceptions to these laws to try to access lower international prices. They have taken steps to be more efficient, to be transparent, and to provide value for money while safeguarding quality and public safety throughout the procurement process. For instance, while some national procurement laws limit options to local suppliers, most countries allow international purchases through UN agencies, such as UNFPA or UNDP. A notable advantage of using UNFPA as a procurement agent is that it gives a government access to the competi­ tive prices offered in the international market without the legal restrictions involved in obtaining products directly from an international supplier, while ensuring quality and transparency throughout the process. A regional comparison of public sector procurement practices revealed that the MOHs in four of the nine coun­ tries examined (Peru, the Dominican Republic, El Salvador, and Guatemala) use UNFPA as a procurement agent to secure contraceptives on the international market, while three more countries (Paraguay, Nicaragua, and Honduras) have plans in place to contract UNFPA for a similar function in the future. Table 3 summarizes current procurement practices in the 14 countries studied. LEGAL AND REGULATORY FRAMEWORK 15 TABLE 3. REGIONAL COMPARISON OF PUBLIC SECTOR CONTRACEPTIVE PROCUREMENT PRACTICES Country Peru Bolivia Paraguay Ecuador Dominican Republic Nicaragua Honduras El Salvador Guatemala Brazil Chile Colombia Costa Rica Mexico MOH Procurement Agent UNFPA None UNFPA planned Local UNFPA UNFPA planned UNDP, switching to UNFPA UNFPA UNFPA Local Local and International Local and International Local and International UNFPA and Local Centralized Pooled Procurement Public Sector Funding for Contraceptives Yes Yes (since 1999) No No Yes Yes (since 2002) No Yes (protected) Yes Yes Yes No Yes Yes, through IDB loan Yes Yes (since 2003) Yes Yes (from 2007) No Yes (at least since 2000) Yes Yes (at least since 1995) No Yes ( at least since 1995) Yes Yes (at least since 1993) Optional Yes (at least since 1996) Source: Interviews with key players. The following pricing analysis will provide evidence that agreements with agencies such as UNFPA off er countries access to significant savings compared with other local purchase options. Similarly, to take advantage of the benefi ts of economies of scale, most of the countries in the study use a centralized procurement strategy in securing contracep­ tives, whether they are on the local or international market. The two notable exceptions to this type of procurement strategy are Ecuador, which procures at a decentralized level, and Bolivia, which still receives all of its contraceptives as donations. Consequently, Bolivia has not developed detailed plans on how it will go about procuring contraceptives with public funds given its decentralized health management system. 16 OPTIONS FOR CONTRACEPTIVE PROCUREMENT: LESSONS LEARNED FROM LATIN AMERICA AND THE CARIBBEAN CONTRACEPTIVE PRICES In analyzing contraceptive prices, it is important to ensure that comparisons are made for the same product, at the same point in the supply chain, in the same period of time. Making price comparisons between and across countries is difficult. For example, prices will vary depending on a host of factors that are not part of this study per se, such as volumes, financial commitment and timing, market conditions, the supplier’s view of the particular client, and so on. Furthermore, although this study did not collect detailed information about suppliers, a clear distinction must be made between prequalified sources with batch traceability and less desirable sources. In addition, higher prices in the private sector for various countries in the LAC region seem mostly to be caused by differences in import duties and variances in related administrative paperwork. In this section, we first look at CIF prices for publicly and NGO-procured oral and injectable contraceptives and IUDs. The cost structures for these methods, which include cost of the product, duties and tariff s, transportation, and administrative costs, are then examined. Contraceptives that have been donated are distinguished from those actually procured, and subregional average prices are calculated for South and Central America.15 Donor prices are quoted for reference purposes. The volumes that USAID and UNFPA typically buy allow manu­ facturers to quote lower prices to these agencies than they would typically quote to individual countries. Also, as mentioned above, this study did not gather information about volumes and the extent to which volume has affected price. As countries diversify their sources of supply, however, several have identified prices that are compa­ rable to UNFPA prices and much lower than prices quoted by domestic agents and suppliers. COMPARING CIF PRICES CIF prices reflect the international cost of the commodity landed at a country’s port of entry; they do not include local tariffs and duties or domestic supply chain costs. For domestically produced commodities, the equivalent point in the supply chain is the ex works (or ex factory) price (see table 1 for pricing terminology). Variations in the CIF price for a commodity in different countries reflect the procurement efficiency of the individual country, the price differences at which pharmaceutical companies make products available in different markets, the distance between the point of origin and port of entry, and the chosen shipping method. Assuming that the products being compared are identical, the more efficient the procurement, the lower the CIF price that will have been negotiated. Procurement effi ciency can reflect the scale of the procurement, the competitiveness of the process, and how well informed the procurement agents were in making their selection. The following analysis addresses prices paid for generic oral contraceptives and injectable contraceptives by the public and nonprofit/NGO sectors throughout the region. CIF PRICES FOR ORAL CONTRACEPTIVES Table 4 presents the range of prices for generic oral contraceptives for the public and nonprofit/NGO sectors in 10 countries. Most prices fell within a range of U.S.$0.29 to U.S.$0.33 per cycle. Two exceptions were an NGO in the Dominican Republic and a local public procurement in Ecuador, which paid U.S.$0.93 and U.S.$2.22, respectively. The higher price in Ecuador reflects the high cost of local procurement. The lowest procurement price paid was by the Chilean public sector (U.S.$0.14 per cycle), followed by an Ecuadorian NGO (U.S.$0.17). Th e 15. Price data were obtained from reference manuals, where available, and through personal interviews between DELIVER staff/consultants and official representatives for the different sectors in each country. CONTRACEPTIVE PRICES 17 TABLE 4. CIF PRICES FOR GENERIC ORAL CONTRACEPTIVES Country Sector Price (U.S.$) Bolivia Nonprofi t * 0.29 Public * 0.21 Chile Nonprofi t 0.33 Public 0.14 Ecuador Public 2.22 Paraguay Public * 0.30 Nonprofi t 0.30 Peru Public ESKE/FamyCare 0.24 Public UNFPA 0.31 Average (South America) 0.25** Dominican Republic Nonprofit 0.93 Public 0.31 El Salvador Nonprofit 0.32 Public 0.31 Guatemala Nonprofi t * 0.31 Public * 0.33 Honduras Nonprofi t 0.31 Public 0.39 Nicaragua Nonprofi t 0.31 Public * 0.34 Average (Central America/Caribbean) 0.39 * Donations. ** South America average excludes U.S.$2.22 outlying value from Ecuadorian public sector. price data indicate that the average cost for generic oral contracep­ tives was approximately 50 percent higher in Central America and the Caribbean than in South America. Table 4 reveals several key points on CIF prices for generic oral contraceptives: • The low prices in Chile and for the Ecuador NGO refl ect access to international prices. In the Chilean case, the open economy allowed for greater competi­ tion. In the Ecuadorian case, the NGO carried out an interna­ tional tender. • The large variations across coun­ tries in CIF prices paid refl ect not only procurement efficien­ cies, but also different prices that pharmaceutical companies charge countries based on economic conditions and the supplier’s own pricing policies. An additional reason for higher average prices in Central America could be that the legal and regulatory environ­ ment is more stringent, and thus, the market is less competitive. • Across the region, there is little variation between prices in the public and nonprofit sectors, except in the Dominican Republic, where the public sector paid U.S.$0.31 per cycle in contrast to U.S.$0.93 per cycle paid by a local NGO. The discrepancies observed between sectors in this case suggest that if provider organizations pooled procurement, there could be substantial savings. • Although several countries rely on UNFPA to procure commodities, UNFPA prices are not always the lowest. In Peru, the public sector procured through UNFPA and ESKE/FamyCare (an Indian manufacturer). Prices paid to UNFPA were approximately 25 percent higher than the price paid to ESKE/FamyCare for oral cycles.16 CIF PRICES FOR THREE-MONTH INJECTABLE CONTRACEPTIVES Table 5 presents comparisons in CIF prices for injectable contraceptives. Overall, the best price (U.S.$0.78 per injection) was obtained in Guatemala (public) and Nicaragua (public), which may reflect more recent procure­ ment data. Peru’s public sector obtained injectables for U.S.$0.85 per injection. In all three cases, UNFPA served as the procurement agent, and the prices obtained were lower than the price of the donated commodity, as was 16. UNFPA has negotiated a Most Favored Customer arrangement whereby FamyCare agrees that, if it offers the same goods under the same market conditions to another party, it will make that pricing available to UNFPA. Situations such as the Peru example may still occur under differing market conditions.There is at least one new prequalified generic supplier of Depo-Provera (generic: DMPA, depot medroxyprogesterone acetate) that offers a competitive price compared with Pfizer and Organon. 18 OPTIONS FOR CONTRACEPTIVE PROCUREMENT: LESSONS LEARNED FROM LATIN AMERICA AND THE CARIBBEAN TABLE 5. CIF PRICES FOR INJECTABLE CONTRACEPTIVES Country Price (U.S.$) Bolivia Nonprofi t * 1.19 Public * 0.90 Brazil Public 1.56 Chile Nonprofi t 1.19 Public 1.15 Paraguay Nonprofi t 1.42 Public * 1.11 Peru Public 0.85 Average (South America) 1.17 Dominican Republic Nonprofit 1.38 Public 1.08 El Salvador Public * 0.89 Guatemala Nonprofi t * 1.18 Public 0.78 Nicaragua Public * 0.78 Sector Average (Central America/Caribbean) 1.02 * Donations. the case with Guatemala’s nonprofi t sector (and partial donations to the public sector), with a cost of U.S.$1.18. (The injections donated to the public sector in Guatemala were then supplied to NGOs.) Both Brazil and Chile paid procurement prices that were higher than those obtained by UNFPA. Table 5 high- lights the following: • In contrast to oral contraceptives, the average CIF prices for inject- able contraceptives are lower in Central America and the Carib- bean than in South America. This shift is due to the fact that the subregional average price in South America is infl ated by the higher price paid in Brazil, which has a more restrictive environment, and in the Para­ guay nonprofit sector, which is required to pay taxes on imported commodities. If Brazil and Paraguay (nonprofit) are excluded, the average South American price is U.S.$1.04, which is still higher than in Central America. • UNFPA serving as procurement agent appears to be a desirable option because its prices were the lowest in the region. • Cost difference across different organizations in Bolivia and the Dominican Republic was extremely large— approximately 70 percent in the Dominican Republic. This variation in prices paid by diff erent organizations in the same country highlights the need for closer coordination and information exchange between NGOs and the public sector. However, the scope for pooling in-country procurement between different partners may be limited, partly because of the nature of the organizations, but mainly because of the markets they cover. If NGOs and MOHs were to pool procurement, the NGOs would not benefit from brand diff erentiation. Th ey would have the same chronic problem that others have had in the region, as NGOs try to develop their own niche, but are unable to because the MOH has the same products and distributes them for free. CIF PRICES FOR IUDS Table 6 compares prices for public and NGO procurement of Copper T-380A IUDs. CENABAST in Chile procured IUDs for the lowest price (U.S.$0.31), which was close to prices obtained by international donors for the public sector in Bolivia (U.S.$0.35). Public sectors in Brazil and Ecuador paid the highest prices. In Brazil, the price of U.S.$3.20 was paid to a domestic producer that did not face any international competition. In Ecuador, the price of U.S.$2.89 was a result of low-volume procurement at the decentralized level. Table 6 highlights the following: • Average CIF price in South America and Central America/Caribbean are similar. • There are large differences among countries in the public sector, such as between Nicaragua (U.S.$1.63 per unit—USAID donation) and the Dominican Republic (average of U.S.$0.33 per unit—UNFPA, Government of CONTRACEPTIVE PRICES 19 TABLE 6. CIF PRICES FOR COPPER T-380A IUDS Country Price (U.S.$) Bolivia Nonprofi t * 1.95 Public * 0.35 Brazil Public 3.20 Chile Nonprofi t 0.81 Public 0.31 Ecuador Public 2.89 Paraguay Nonprofi t 0.56 Public * 0.42 Peru Public 0.54 Sector Average (South America) 1.23 Dominican Republic Nonprofit 0.75 Public 0.33 Guatemala Nonprofi t 1.57 Public * 1.49 Nicaragua Public * 1.63 Average (Central America/Caribbean) 1.15 * Donations: Bolivia and Paraguay public sectors (from UNFPA). Guatemala and Nicaragua public sectors and Bolivia nonprofit sector (from USAID). the Dominican Republic purchase). Th ese diff erences refl ect procurement efficiencies, such as UNFPA procur- ing for the Dominican Republic; in contrast to Nicaragua, which has not begun to procure its own contraceptives. • Even within a given country, large price differences are observed across sectors. In Bolivia, for example, commodities donated by UNFPA and Japan International Cooperation Agency (JICA) to the public sector had a unit costs of U.S.$0.35. On the other hand, commodities donated by USAID to the nonprofi t sector were much more expensive (U.S.$1.95 per IUD). Diff erences in Chile are not as extreme, but CIF prices for IUDs are more than twice as high for the nonprofit sector as for the public sector (U.S.$0.81 versus U.S.$0.31 per unit). • As with injectables, coordination and information sharing between NGO and public sector partners can help identify where different organizations are paying different prices for the same contraceptive methods. While national governments may not have access to the same prices given to donors, donor prices do represent a benchmark that governments should take into account. In summary, countries procuring through UNFPA (such as El Salvador, Peru, and the Dominican Republic) generally obtain commodities at a lower price than those countries that procure on their own locally (such as Ecuador and Brazil). However, UNFPA does not always ensure the lowest prices for all products, as seen by Peru’s procurement of oral contraceptives through ESKE/FamyCare. CIF prices of donated commodities vary depending on the donor; UNFPA donations are often lower priced, but donated commodities are not necessarily the lowest priced commodities on the market. COMPARING PRIVATE SECTOR PRICES Analysis of private sector retail prices is particularly instructive for countries with decentralized procurement, because they approximate the prices that local municipalities may be forced to pay unless concrete steps are taken to coordinate public purchases. Prices charged by the private sector implicitly include price of the imported (or manufactured) commodity; taxes, tariffs, and duties; and administration, transportation, and distribution costs. However, this information disaggregated is not readily available from pharmacies and individual retail outlets. Th e components of price are discussed in the next section of this report. The larger economies of South America should be able to get a more competitive price for commodities because of larger volumes, greater economies of scale with distribution systems, and better developed transport systems. However, because these countries are larger, distances between cities are greater. These factors all infl uence private sector prices. 20 OPTIONS FOR CONTRACEPTIVE PROCUREMENT: LESSONS LEARNED FROM LATIN AMERICA AND THE CARIBBEAN TABLE 7. RETAIL PRICES FOR ORAL CONTRACEPTIVES Price (U.S.$) Product Country Average Range Microgynon Paraguay Ecuador Dominican Republic Bolivia Colombia Peru Nicaragua Honduras El Salvador Guatemala 2.72 2.64–2.89 3.22 n.a. 3.22 3.11–3.23 3.24 3.12–3.37 3.80 2.95–6.61 4.29 n.a. 5.00 n.a. 5.69 n.a. 6.47 n.a. 9.92 n.a. Nordette Brazil 1.80 n.a. Colombia 3.39 n.a. Ecuador 3.93 n.a. Dominican Republic 5.98 5.80–6.07 Duofem Bolivia 0.74 0.62–0.81 Dominican Republic 2.14 1.67–2.83 Micropil r-28 Brazil 7.60 n.a. Micropil Brazil 6.14 n.a. Anovulatorio Chile 1.69 1.68–1.90 RETAIL PRICES FOR ORAL CONTRACEPTIVES Table 7 presents the average prices for fi ve different brands of oral contraceptives: Microgynon, Nordette, Duofem, Micropil, and Anovulatorio. Th e wide variation in prices per cycle refl ects some differences in commercial pricing for brands. The regionwide aver­ age price of U.S.$4.24 per cycle in the private sector is substantially more than the average CIF price of U.S.$0.32 per cycle, including subsidized products (in the case of Bolivia). Th is diff erence refl ects the potential gap between national procurement in bulk and local, small-scale purchasing, as well as higher transportation costs that the private sector pays (discussed in the next section). The highest aver­ age-priced product in the region was Microgynon in Guatemala, with an average price of U.S.$9.92 per cycle. Highlights from table 7 include the following: • Average prices in South America tend to be lower for Microgynon, but the prices showed great variation within any given country, refl ecting diff erent cost structures for products, transportation, distribution, and profi t margins. In Colombia, even though the average price is U.S.$3.80 per cycle, the range varies more than in any other country, which shows that no price control allows for wider price fluctuations and, possibly , more acces­ sible prices. • Within a country, average prices for differ ent brands also varied greatly. Duofem in Bolivia, with an average price of U.S.$0.74 per cycle, costs consumers a fraction of the average price of Microgynon (U.S.$3.24 per cycle). It is important to note that Duofem in Bolivia is a donated product, and its price in pharmacies is subsi­ dized. In the Dominican Republic, Brazil, and Chile, similar price differ entials were also observed. • Although average prices were higher in Central America than South America, in part because of the legally restrictive procurement environment, there was great variation in average price within the subregion. In Guate­ mala, the average price for Microgynon was U.S.$9.92 per cycle; in neighboring Honduras and El Salvador, average prices were lower (U.S.$5.69 and U.S.$6.47, respectively, per cycle). This may r efl ect diff erential pricing by the pharmaceutical companies; it may also refl ect diff erent prices charged in differ ent neighborhoods in each country. • Unlike in South America, where retail prices are published, retail prices in Central America were obtained only from a small number of pharmacies. A larger survey of pharmacy prices may be required to gain a more thorough understanding of price variations in each Central American country. CONTRACEPTIVE PRICES 21 TABLE 8. RETAIL PRICES FOR INJECTABLE CONTRACEPTIVES Price (U.S.$) Product Country Average Range Depo-Provera Bolivia 1.46 1.12 - 1.50 Colombia 2.68 n.a. Nicaragua 3.37 n.a. Honduras 6.82 6.63–11.09 Peru 9.82 n.a. Ecuador 11.44 n.a. El Salvador 13.84 n.a. Dominican Republic 17.21 16.00–18.53 Guatemala 23.57 n.a. Mesigyna Bolivia 5.62 5.11–6.32 Brazil 6.20 0.00–8.15 Chile 9.74 8.43–9.90 Ecuador 5.30 n.a. Paraguay 3.97 n.a. Peru 5.99 n.a. Dominican Republic 10.00 9.97–10.07 El Salvador 7.03 5.16–7.85 Guatemala 9.93 n.a. Honduras 5.89 n.a. Nicaragua 4.64 3.15–11.00 Colombia 6.55 6.12 – 6.87 RETAIL PRICES FOR INJECTABLE CONTRACEPTIVES Table 8 presents data on average retail prices for two injectable contraceptives: Depo-Provera (three months) and Mesigyna (one month). Overall, the average price for injectables in the region was U.S.$8.00, but average prices were higher in Central America and the Caribbean (U.S.$10.00) than in South America (U.S.$6.80). Within each country, the low and high prices reflect retail prices in different locations, as pharmacists in wealthier neighborhoods often charge higher prices than those in poorer neighborhoods. Highlights from table 8 include the following: • Price comparisons are available for both products in seven countries; in Bolivia, Colombia, and Nicaragua, average prices for Depo-Provera were lower; in Ecuador, Peru, Guatemala, Honduras, and the Dominican Republic, average prices for Mesigyna were lower. However, in Bolivia, Depo-Provera is donated by USAID and commercialized by local distributors through pharmacies. • The av erage price of Depo-Provera in Guatemala (U.S.$23.57), which also had the highest retail price for oral contraceptives, is at least twice as high as in other Central American countries. Th e reasons for these wide varia­ tions are not clear. As with oral contraceptives, factors could include differ ences in supplier pricing policies, the lack of published price information in Central America, and the fact that only a few pharmacies were visited. Future analysis of a larger number of pharmacies would be benefi cial. • Although CIF prices for the private sector are not available, when comparing public and NGO CIF prices to private sector retail prices, it immediately becomes clear that the private sector is earning a signifi cant profi t margin on contraceptives. For instance, the median CIF price for Depo-Provera is U.S.$1.13 versus the median retail price U.S.$6.82. Note: Retail prices for IUDs were excluded because there was not enough information on product comparability. COMPARING COST STRUCTURES Better knowledge about the cost structure for contraceptives is crucial for a good understanding of the observed price differences for commodities across countries and sectors. Information about how the components aff ect price can help countries make more informed procurement decisions. This section examines the different price compo­ nents for oral contraceptives, injectable contraceptives, and IUDs: CIF (or ex factory) price; taxes, tariffs, and duties; costs associated with transportation, distribution, and retail margins; and costs associated with administration and 22 OPTIONS FOR CONTRACEPTIVE PROCUREMENT: LESSONS LEARNED FROM LATIN AMERICA AND THE CARIBBEAN TABLE 9. COSTS ASSOCIATED WITH TRANSPORTATION, DUTIES AND TARIFFS, AND VAT Duty/Tariff (percent) VAT Country Public Nonprofi t Public Nonprofi t Bolivia <15 <15 No Yes Chile 5–10 n.a. Yes Yes Colombia 0–10 0–10 No No Ecuador n.a. n.a. No Yes Paraguay <5 n.a. No Yes Peru 5–10 <5 Yes Yes Dominican <15 <15 No Yes Republic El Salvador <5 5–10 Yes Yes Guatemala n.a. n.a. No Yes Honduras n.a. n.a. No Yes Nicaragua n.a. n.a. No Yes * Public sector ** Nonprofit sector Source: Interviews with key players Transport (percent) n.a. 3.5 3.0 <1.0 n.a. 2.7* n.a. n.a. 3.6*–2.4** 6.5** 5.4** social marketing. Although it was not possible to collect information on each of the price components for all products in each country, it is still possible to compare some key elements of the supply chain cost structure in both the public and social marketing sectors for selected FP methods. The public sector tends to provide commodities free-of-charge, but it still incurs costs for the commodity, duties and taxes, and distribution and transportation. Public sector data include detailed information on these four cost components, including delivery at the central level and sometimes the district level.17 The social marketing (nonprofit) sector was the most detailed source of information on the cost structure of commodities. For social marketing organizations, the cost of repackaging and marketing represents an important cost component. Although this information is presented in Figures 2, 3, and 4, the objective of doing so is not to compare the relative costs for different social marketing organizations, because they operate under different levels of sustainability and cost recovery. Other costs––transportation, duties and tariffs, and VAT––are handled differently in each country, as shown in table 9. Donated contraceptives usually enter a country duty free. However, as countries procure their own contra­ ceptives, tariffs on imported commodities could form an increasing proportion of total contraceptive costs. Some countries impose VAT as high as 19 percent on contraceptives, while others exclude them. Only Peru, El Salvador, and Chile charge VAT for all contraceptive methods, regardless of the purchasing agent. Bolivia, Ecuador, Paraguay, Guatemala, Honduras, Nicaragua, and the Dominican Republic impose VAT only on private (profi t and nonprofit) organizations, unless the commodities are donations. Transport costs were more difficult to obtain because they frequently are subsumed in administrative and overhead costs. Central American countries, with the exception of Guatemala, tend to have higher transportation costs (around 6 percent) than in South America, where countries like Chile and Peru show an average of less than 4 percent, perhaps because transportation systems and highways are better developed in some of the more developed countries of South America. COST STRUCTURE FOR ORAL CONTRACEPTIVES Figure 2 presents cost structures for oral contraceptives in the public and social marketing (nonprofit) sectors. Th e figure shows that average costs in Central America and the Caribbean are higher than those in South American countries: U.S.$0.78 compared with U.S.$0.64. Chile’s public sector reports the lowest total cost, followed by public sectors in Peru, Honduras, and Guatemala, while Ecuador’s public sector reports the highest total cost, U.S.$2.22, reflecting the decentralized purchases made by the health areas. This price is not shown in fi gure 17. Price information from private pharmacies and distributors was available, but the underlying costs components were considered commercially sensitive and, thus, not made available. CONTRACEPTIVE PRICES 23 Bo liv ia/ Pu b Br az il/P ub (in w are ho us e, inc l. C IF) Ch ile /P ub Pa rag ua y/P ub Pe ru /P ub (U NF PA ) Pe ru /P ub (E SK E/F am yC are ) Bo liv ia/ NG O Ch ile /N GO Ec ua do r/N GO Pa rag ua y/N GO Pe ru /N GO AV G: So ut h A me ric a Do mi nic an Re p./ Pu b El Sa lva do r/P ub Gu ate ma la/ Pu b Ho nd ur as /P ub (U ND P, inc l. C IF) Ni ca rag ua /P ub Do mi nic an Re p./ NG O El Sa lva do r/N Go Gu ate ma la/ NG O Ho nd ur as /N GO Ni ca rag ua /N GO AV G: Ce nt ral Am eri ca & th e C ari bb ea n 0. 00 2. 00 2 0 0 5 U.S.$ T o t a l A v er age: U . S . $ 0 . 7 1 South A m e r ic a Cen t ral A m eri ca & t h e Cari b b e an Figure 2. Cost Structure for Oral Contraceptives in the Public and Social Marketing Sectors (2005 U.S.$) 1. 1. 1. 1. 1. 0. 0. 0. 0. 80 60 40 20 00 80 60 40 20 CIF Price (or local manufacturer) Duty charges, Tariff, and VAT (if applicable) Administrative Costs and Social Marketing Transport, Distribution Margin, Retail Margin, and Other Margins/Costs 2 because it would distort the graph, making the other cost structures more difficult to read. Th e Dominican Republic’s nonprofit sector (U.S.$1.57 per cycle) and Brazil’s public sector (U.S.$1.31 per cycle) also have very high costs. Nonprofit costs in Central America tended to be higher than nonprofit costs in South America. Highlights from figure 2 include the following: • Public sector costs tend to be lower than those in the social marketing (nonprofit) sectors. For the public sector, almost all of the cost of oral contraceptives was due to the CIF (or local manufacturer) price. In the public system in South America, transport and warehousing costs are estimated to be relatively low, less than 3 percent, whereas in Central America they are estimated to be higher, around 6 percent. • For social marketing programs in Paraguay, Peru, Ecuador, Honduras, and Guatemala, the CIF represented less than half of the total cost of making the commodity accessible to the public. Transportation and distribution represented a significant part of the total cost. • While duties and VAT represented a relatively small portion of the total cost in most countries, in the Domini­ can Republic, they represented approximately 18 percent of the total cost of commodities provided by social marketing programs. 24 OPTIONS FOR CONTRACEPTIVE PROCUREMENT: LESSONS LEARNED FROM LATIN AMERICA AND THE CARIBBEAN Bo liv ia/ Pu b Br az il/P ub Ch ile /P ub Pa rag ua y/P ub Pe ru /P ub Bo liv ia/ NG O Ch ile /N GO Ec ua do r/P ub Pa rag ua y/N GO AV G: So ut h A me ric a Do mi nic an Re p./ Pu b El Sa lva do r/P ub Gu ate ma la/ Pu b Ni ca rag ua /P ub Do mi nic an Re p./ NG O Gu ate ma la/ NG O Ni ca rag ua /N GO AV G: CA & th e C ari bb ea n Ec ua do r/N GO Figure 3. Cost Structure for Injectable Contraceptives in the Public and Social Marketing Sectors (2005 U.S.$) 2005 U.S.$ 4. 4. 3. 3. 2. 2. 1. 1. 0. 0. 50 00 South A m e r ic a C e n t ral A m er i ca & t h e Cari b b e an T o t a l A v er age: U . S . $ 2.10 50 00 50 00 50 00 50 00 CIF Price (or local manufacturer) Duty charges, Tariff, and VAT (if applicable) Administrative Costs and Social Marketing Transport, Distribution Margin, Retail Margin, and Other Margins/Costs COST STRUCTURE FOR INJECTABLE CONTRACEPTIVES Figure 3 shows the cost structure for injectables in the public and social marketing sectors. At U.S.$1.90, the aver­ age total cost in South America is higher than in Central America and the Caribbean. The highest average total cost for injectables is in the nonprofit sector in Ecuador, with a cost of U.S.$4.00 per injection because of decen­ tralized procurement. Nicaragua’s public sector had the lowest average total cost of U.S.$0.85. Highlights from figure 3 are as follows: • Overall, total costs for injectables were higher in the nonprofit sector than in the public sector , because most products are donated in the public sector, whereas the NGO sector has to buy them and pay all related taxes and duties. Duties, tariffs, and VAT represented an important element of total costs in the public sectors of Brazil and Chile—approximately 33 percent and 21 percent, respectively. • Comparing total average costs of oral and injectable contraceptives within the same country and sector suggests that, in some cases, one injectable has a lower total cost than three cycles of oral contraceptives. For example, in the nonprofit sector of the D ominican Republic, total costs for one injection are approximately U.S.$2.35 compared with U.S.$5.37 for three cycles of oral contraceptives. Similarly, in the public sector of Peru, one injection has a total cost of approximately U.S.$0.96 compared with U.S.$1.02 for three cycles of oral contraceptives. CONTRACEPTIVE PRICES 25 Bo liv ia/ Pu b Br az il/P ub Br az il/N GO Ch ile /P ub Pa rag ua y/P ub Pe ru /P ub Bo liv ia/ NG O Ch ile /N GO Ec ua do r/P ub Pa rag ua y/N GO Pe ru /N GO AV G: So ut h A me ric a Do mi nic an Re p./ Pu b Gu ate ma la/ Pu b Ni ca rag ua /P ub Do mi nic an Re p./ NG O Gu ate ma la/ NG O Ni ca rag ua /N GO AV G: CA & th e C ari bb ea n Figure 4. Cost Structure for IUDs in the Public and Social Marketing Sectors (2005 U.S.$) 2005 U.S.$ 0. 0 0 2. 0 0 4. 0 0 6. 0 0 8. 0 0 10 .00 12 .00 So u t h A m erica Cen tra l A m erica & th e Car i bb ean Total Average: U.S.$3.27 C I F P ric e (or loc a l m a n u fac t urer) D u ty cha r g e s , T a r i ff , a nd VA T (if a p p l ic a b le ) A d m i n i st r a t i v e C o s t s an d S o c i a l M a r k et i n g T r a n s p or t, D i s t r i bution M a rgin, R e ta il M a r g i n , an d O t h e r M a rgins / Cos t s Source: Data collected by JSI research team. COST STRUCTURE FOR IUDS Figure 4 provides information on the cost structure for Copper T-380A IUDs in the region. The small number of observations in figure 4 limits the conclusions that can be drawn. Overall, the average price of U.S.$3.24 masks the considerable variation between the average total cost for Central America and the Caribbean (U.S.$2.54 USD) and South America (U.S.$3.89). The lowest costs are observed in the public sectors of Bolivia, Chile, Paraguay, Peru, and the Dominican Republic, followed by the nonprofit sector of Nicaragua. Estimated transport and distri­ bution costs for most of the nonprofit organizations outweigh CIF costs, at times representing more than 10 times the cost of the imported (or locally manufactured) commodity. PRICING CONCLUSIONS Comparisons of CIF prices between countries and with median international reference price (IRPs) provide an indication of a country’s procurement efficiency. Assuming similar transport costs, the landed price of contra­ ceptives would reflect whether a country has achieved economies of scale and identified lower cost suppliers for their contraceptives. While the analysis of the CIF prices paid by donors does not necessarily indicate prices that countries could achieve, they do represent relevant reference points. These prices can be considered when looking at prices available from commercial sources to determine whether there is scope for cost savings that result from using a procurement agent such as UNFPA. 26 OPTIONS FOR CONTRACEPTIVE PROCUREMENT: LESSONS LEARNED FROM LATIN AMERICA AND THE CARIBBEAN Comparisons of contraceptive prices obtained by donors, national governments, NGOs, and the private sector show considerable variation both across and within the countries studied. Donor prices represent a low base that most countries will not be able to obtain for name-brand products because national governments are unlikely to match the purchased volumes achieved by donors, except when they choose UNFPA as the procurement agent. Simultaneously, suppliers will face more transactions costs in dealing with individual national governments and thus charge higher prices. Switching to Good Manufacturing Practice (GMP)-certified generic producers does offer the opportunity to obtain lower prices, although this places greater demands on national capacity to ensure product quality. Countries have experienced mixed results in the prices obtained through public procurement. Countries such as Chile, Costa Rica, and Peru have obtained prices at or even below international reference prices, in some cases lower than prices paid by donors, by buying generic rather than brand-name items. Other countries have done less well. In Brazil, the more restrictive and more closed domestic market combined with governance concerns have contributed to higher prices. In Ecuador, decentralization has contributed to lower purchase volumes and higher prices paid to local suppliers. El Salvador, the Dominican Republic, Guatemala, and now Paraguay and Honduras have tried to overcome restrictive procurement regulations and high local prices by using UNFPA as the purchasing agent. Although UNFPA usually does provide products at the lowest prices, Peru’s experience in purchasing generic oral pills from FamyCare is an example of one country obtaining lower prices. Considerable variations in prices paid for the same contraceptive method by the public and NGO sectors within each country suggest the need for greater coordina­ tion and exchange of information. Transport and distribution costs represent, at most, 6 percent of the commodity costs in Central America and 3 percent in South America. Suppliers should be able to quote prices for products delivered to at least the district store level to minimize the need for public sector distribution. Retail prices for contraceptives are typically higher in Central American than in South America, refl ecting a combination of factors, including less open and smaller economies, less price competition among domestic distributors, and higher transport and distribution costs. Brazil is an exception to this in South America because of its less open and more protected domestic economy. Recommended retail and wholesaler prices for a wide range of pharmaceuticals, including contraceptives, are published in several South American countries. This helps ensure that prices in the private sector do not vary considerably across different regions or different neighborhoods within a municipality. Published prices were not obtained in Central America, and greater price variations were observed for individual contraceptive methods both between and within countries. CONTRACEPTIVE PRICES 27 28 OPTIONS FOR CONTRACEPTIVE PROCUREMENT: LESSONS LEARNED FROM LATIN AMERICA AND THE CARIBBEAN LESSONS LEARNED Governments need to ensure that their procurement capacity can indeed purchase the right contraceptive products at the right time, in the right place, for the right price, in the right quantity, and of the right quality. These six procurement “rights” are key to the procure­ ment challenges countries are increasingly addressing. The 14 Latin American countries reviewed for this study have a wealth of diverse experience in contraceptive financing, procurement, and distribution. While each country has its own set of economic, health, and development conditions, regulations, and institutions, there are a number of common factors that suggest lessons can be learned from examples of best practice in the region. Because many USAID-presence countries are facing similar issues to those faced by countries USAID has phased out, it is important to learn from others’ successes and mistakes. We present examples of both success stories and problems experienced with financing, procurement, and distribution. We also present some other lessons learned from the experience of countries that were phased out of donor support. The public purchase of contraceptives should adhere to the procurement principles noted in table 10. As table 10 shows, these procurement principles require several regulatory, institutional, management, and technical capacity preconditions. It will not be possible to attain these ideal procurement conditions unless regulations allow access to products from different sources, procurement staff are accountable to following clear guidelines, and staff can make informed purchasing decisions based on price and quality comparisons while ensuring product safety. In many countries, the conditions are not yet in place to allow these procurement principles to be applied. Nevertheless, The Six “Rights” 1. Right product 2. At the right time 3. In the right place 4. For the right price 5. In the right quantity and 6. Of the right quality. TABLE 10. PROCUREMENT PRINCIPLES Principle Procurement management efficiency Transparency Provides value for money Provide effective safe and efficacious methods Rationale The process should be as smooth and efficient as possible and managed carefully from initial product specification through product delivery and use.This requires pre- and postshipment procurement management to ensure supplier quality standards and shipment issues are addressed. The procurement process should be transparent, clearly following defined guidelines and criteria for selection that encourage decision making to be rational so that procurement decisions can be clearly understood by outside scrutiny. Use of public funds demands that spending demonstrate value for money and the best possible deal be obtained subject to quality and safety considerations.This requires a review of a choice of products from different national and international sources and comparisons of price, product shipment conditions, and an evaluation of product quality. Bulk purchase is a key way to ensure value for money to obtain economies of scale in delivery and lower unit prices. Effective quality control is of paramount importance to safeguard public safety and ensure that effective and efficacious methods are procured. Preconditions Requires a procurement management capacity. Supposes good governance, management oversight, and public accountability. Requires regulations that allow unrestricted access to supplies from different sources and centralized procurement. Requires technical quality assurance capacity and access to testing laboratories. LESSONS LEARNED 29 several countries have adapted to their regulatory, governance, and management constraints to try to improve their procurement process. STRENGTHENING PROCUREMENT PLANNING AND MANAGEMENT Improved procurement planning and management are essential if countries are to ensure that public funds are used wisely in purchasing contraceptives. Better management requires improvements across the procurement cycle. Th is begins with identification and quantification of product requirements, and includes a budget review and approval process, a tender process that is either international or national depending on the product, a tender evaluation process and a post-tender contract management process, and a quality assurance process to ensure that only products meeting requirements are accepted for delivery. Key elements or steps of the procurement cycle include the following: • procurement planning, including product selection, quantification, and budgeting • preparation of bidding documents • management of bidding process from advertisement to bid opening • bid evaluation • contract award • preparation and signing of contract • contract management during implementation, including dispute resolution methods • general handling of procurement cycle (duration, participants, reviews, etc.). In the process of procuring commodities, the following elements of the procurement cycle are captured to explain a flow of activities based on policy, legislation, and adequate guidelines: • specialized knowledge and expertise of pharmaceuticals and contraceptives • sustainable fi nancing sources • knowledge of and compliance with lender, donor, and government procurement procedures • careful product selection and specifi cations • accurate forecasting • specific quality testing protocols and procedures • precise preparation of tender documents • addressing brand preferences • transparent negotiations and contract management • receipt and inspection of products. Figure 5 illustrates the chronological flow of procurement-related steps. Failure to address accurate forecasting, for example, could result in the production of erroneous tender documents, leading to supply imbalances. Similarly, financing sources should be identified and secured before beginning the procurement process. Furthermore, the number of agencies involved dictates a high level of coordination among the regulatory bodies, logistics functions, financing agencies, and others involved in the process. 30 OPTIONS FOR CONTRACEPTIVE PROCUREMENT: LESSONS LEARNED FROM LATIN AMERICA AND THE CARIBBEAN Figure 5. Illustrative Procurement Steps Select Products Logistics Unit Quantity Requirements Logistics Unit in Collaboration with MIS Unit Prepare Technical Logistics Unit Prepare Tender Document Department Advertise Tender Purchasing Department Receive & Evaluate Tenders Decision Committee Purchasing Department Drug Control & Research Pharmaceutical Affairs Award Contract Receive & Inspect Products Source: Procurement Stategies for Health Commodities, DELIVER/USAID. Contraceptive Product List Pipeline Analysis Consumption Data Budget Estimates Product Technical Information Certification Requirements Packaging Requirements Labeling Requirements Instructions to Tenders Specifications Delivery Schedule Payment Terms Contract Conditions Two Mass Circulation Papers 30 Day Tender Response Tender Opening (2 Steps) Technical Evaluation Product Registration Confirmation Selection Approval Notify Successful Tender Optain Performance Security Sign Contract Arrange Payment Means Customs Clearence Document Review Visual Inspection Labratory Testing PROCUREMENT KEY STEPS Experience suggests that attaining the six procurement rights requires careful planning and management. Th ese six rights require the following: • Funding should be earmarked and disbursed in a timely manner to ensure that economies of scale can be achieved with public procurement. • International competitive bidding (ICB)18 can provide access to the best prices, but this requires MOH staff with specialized training in procurement best practices. • Use of procurement agents should be considered, particularly while MOH staff are being trained in procedures such as ICB and World Bank procedures.19 • UNFPA can act as a procurement agent to allow access to international prices, particularly where regulations are a constraint. UNFPA performance should be monitored and managed, as with any procurement agent, to ensure that lower priced contraceptives are actually being delivered on time. The use of procurement agents also improves transparency and ensures quality. • The regulatory environment should permit international tenders to encourage price competition. • Procurement agencies should review international reference prices, where possible, exchanging information with neighboring countries to allow better informed buying. 18. International competitive bidding is a procurement process designed to provide the recipient with a wide range of choices in selecting the best tender/ bid offer from competing suppliers/contractors, and to give to all prospective tenderers/bidders from eligible source countries adequate, fair, and equal opportunity to bid on goods and works that are being procured. For more information please refer to Procurement Strategies for Health Commodities: An Examination of Options and Mechanisms within the Commodity Security Context. (Rao et al.). 19. World Bank procurement procedures are designed to support good governance and value for money in public spending.They encourage international competitive bidding (ICB) for large purchases and involve a series of approval steps and crosschecks to ensure these steps are being followed. LESSONS LEARNED 31 • Negotiations with manufacturers should look at the benefits of generic purchase while ensuring proper quality and drug safety standards. • Manufacturers may be able to quote prices for in-country delivery to districts or regional stores. • Procurement decisions should be transparent and independent of political interference. • Use of the Internet to publicize procurement opportunities and to document procurement decisions can help improve governance by putting procurement decisions under public scrutiny. • Use of regional and international quality standards and laboratories can offset the cost of contraceptive quality control. MEASURES TO IMPROVE TRANSPARENCY Ensuring good governance and transparency in implementing regulations, norms, and processes related to procurement is a persistent problem in both developed and developing countries. Therefore, establishing policies and clear procedures to improve transparency and accountability in the procurement process, quality control, and information flow is a critical step toward ensuring that procurement decisions can withstand outside scrutiny. These measures also raise public confidence in public sector management of the health system. A number of strategies have been adopted within the region to improve transparency and safeguard good governance in the procurement process. They include the following: Using independent procurement agents (Peru, El Salvador, the Dominican Republic, and Honduras). Independent procurement agents such as UNFPA and UNDP help improve transparency in the contraceptive procurement process. For example, because of concerns about corruption in the use of loan funds, the World Bank and the IDB require governments to use procurement agents to manage commodity procurement processes. In Honduras, UNDP acts as a procurement agent for the IDB loan. Countries in other regions have used commercial agents–– Crown Agents, SGS, International Dispensary Association (IDA), Charles Kendall––to procure drugs BOX 2.A LESSON FROM COSTA RICA—ENSURING and contraceptives as procurement TRANSPARENCY IN QUALITY CONTROL agents for sectorwide health loans. In Costa Rica, because of public concern about impending changes resulting Establishing autonomous agencies to from CAFTA and increased public vigilance generated by government cor­manage the procurement process. As ruption scandals, a healthy public debate has emerged around procurement. described in box 1, CENABAST, Citizens are concerned about the efficiency and integrity of the procurement an autonomous agency in Chile, process for medicines and quality health commodities.As a result, new is in charge of procurement for laws, decrees, and policies designed to streamline the procurement process, the government. In Costa Rica, increase transparency, and improve quality of products within the CCSS are being widely discussed at all levels of government. an autonomous agency, the Costa Rican Social Security Fund (CCSS, As a result of public debate and pressure, the Costa Rican government estab- Caja Costarricense de Seguro Social), lished a national commission to ensure the quality of health commodities. In procures all essential drugs for the an attempt to separate procurement responsibility from quality control, and in the interest of increasing transparency, in January 2004, the commission public sector, leaving little room for transferred quality control for health commodities from CCSS, the procuring political pressure, while enabling agency, to the MOH.This transfer came into effect during the last quarter of the CCSS to gain stronger leverag­ 2005. In addition, in recent months, the national commission has required that ing power with commercial suppli- generic commodities be tested for therapeutic equivalence. It is expected ers, despite Costa Rica’s relatively that more changes and reforms will take place as CAFTA is ratified and citi­ small market. Although fi rst steps zens continue to demand more transparency, increased availability, and higher product quality from the public sector. have been taken to remove political 32 OPTIONS FOR CONTRACEPTIVE PROCUREMENT: LESSONS LEARNED FROM LATIN AMERICA AND THE CARIBBEAN influence throughout the decision-making process in Costa Rica, recent corruption scandals illustrate that further steps must be taken to ensure better governance, increased availability, and deepened transparency throughout the procurement process. See box 2 for recent steps being taken to further governance and ensure transparency in Costa Rica. Separating procurement responsibility from quality control. In Chile, quality control is outsourced to an international firm that is responsible for accrediting and prequalifying local suppliers from whom CENABAST is authorized to solicit procurement bids. In Costa Rica, the MOH is responsible for ensuring the quality of health commodities that are procured by the CCSS (also see box 2). Relying on external entities to audit the procurement process. In Chile, bids, demand consolidation, and provider clas­ sification are audited by a private firm, thereby increasing transparency and reducing opportunities for corruption. Establishing clear and open information flows. Chile, Guatemala, and Costa Rica have started to use the Internet to promote e-commerce-driven procurement. This strategy increases competition by providing information to more suppliers and helps to make the process more transparent and open. In Chile, CENABAST uses the Web site www.Chilecompra.cl to solicit bids for public sector goods and services. All documents and information related to the bidding process, as well as results, are publicly available on this Web site. The CCSS in Costa Rica is exploring ways to improve efficiency and transparency in the procurement process by automating tenders, increasing the use of the Internet as a procurement vehicle, and even conducting its own online procurements. Currently, public information is made available via the CCSS Web site (http://www.ccss.sa.cr/), and eventually, the CCSS will provide price and procurement data online to ensure accountability and reduce the amount of staff time spent responding to audits. In Guatemala, the Web site www.guatecompras.gt has been set up to announce bids and share information widely. VALUE-FOR-MONEY STRATEGIES A number of value-for-money strategies have already been adopted in the region. The underlying premise is that procurement management capacity exists for informed buying choices to be made. PRICE COMPARISONS Prices should be one of the most important factors for countries to consider in selecting contraceptive suppliers. Securing the best possible price for good-quality contraceptives is vital for achieving CS in the absence of donor funding. Nonetheless, the USAID-presence countries studied do not have a tool or system in place that allows them to compare prices of different local, international (including local agents of international companies), and NGO suppliers. Developing and systematizing such a tool is an important first step in identifying a procurement option or options that will ensure the efficient use of government resources for contraceptive purchases. While some countries do engage in price comparisons to justify their choice of supplier (El Salvador, Peru), these comparisons are neither comprehensive nor systematic. A systematic, comprehensive price comparison tool, which includes both brand-name and generic contraceptives, would help keep decision makers informed about the vari­ ous supply options available in both the national and international markets. It would also help improve transpar­ ency and price competitiveness in the contraceptive market. INFORMED BUYING IN PERU As mentioned previously, in 2004, the Peru Ministry of Health (MINSA, Ministerio de Salud) (with UNFPA) conducted a market study to identify the best available prices for the four contraceptive commodities that the FP program procures. In the case of injectables and IUDs, MINSA opted to procure from UNFPA because its prices were the lowest available. However, the price of the oral contraceptive (etinil estradiol) was significantly lower in the local market, even after including cost of distribution to local delivery points, a service not offered by UNFPA. LESSONS LEARNED 33 Hence, in 2004, MINSA chose to procure etinil estradiol locally, thereby achieving significant savings. Th e supplier was ESKE, the local representative of the Indian company FamyCare. The entry of companies like ESKE into local markets has great potential to increase competition among local suppliers, thereby yielding better prices for contraceptives. This experience underscores the importance of establishing, updating, and maintaining a systematic, comprehen­ sive price comparison tool to inform decision makers about the various supply options available in national and international markets. INFORMED BUYING IN COSTA RICA The CCSS has procured contraceptive products at competitive pricing levels during the last five years from both international and local manufacturers. The cost information provided by the CCSS suggests that it has established several cost-effective alternatives by alternating between local and international manufacturers. The fact that it is able to procure locally manufactured as well as international competitively priced products means that Costa Rica has important alternatives that are not available to many countries. Furthermore, the CCSS is developing and evaluating new strategies to improve procurement effi ciencies and ensure more competitive prices. Staff from the CCSS mentioned the limitation of supplying a small market in order to negotiate prices with suppliers. They have considered the possibility of merging with larger countries to conduct what they describe as “parallel” purchases, whereby they would purchase some medications directly from these larger countries to access the same economies of scale. This strategy has not yet been fully evaluated, and the details are under development by CCSS staff. Some informants expressed that CAFTA may facilitate the establish­ ment of a regional procurement system and thus help the region obtain better prices as a result of demands for higher volume. In addition, the Central American region is evaluating the feasibility of having a customs union, which would standardize and regionalize the requirements for registration of all medicines and medical supplies and consequently streamline the procurement process. NEGOTIATING WITH MANUFACTURERS Peru also negotiated a contract with the local Pfizer distribution office for Depo-Provera. MINSA was willing to pay 20 percent over the UNFPA price to have Depo-Provera delivered to the district level rather than the central level. It thus used the UNFPA price as a reference price in negotiating better delivery terms from the local Pfi zer office than UNFPA could off er. Th e Pfi zer office was able to make a small profit on the deal. Otherwise, it would have been bypassed by UNFPA, which would have procured from Pfizer’s international headquarters. There may be other situations in which manufacturers would be willing to be more competitive on price. Several manufacturer’s agents approached MINSA after UNFPA had been awarded the procurement contract to say they could have offered better prices, which is exactly the sort of competitive response required for the next tender. The public and private sectors in some countries have diversified their sources of contraceptive purchases to include new, more competitive suppliers, such as producers from Brazil and India. The experience of ESKE in Peru is such a case. Similarly, distributors such as the International Dispensary Association (IDA/Holland), which already supply ARVs in the region, could emerge as future low-priced providers of contraceptives in national, subregional, or regional markets. IDA’s list of products includes contraceptives. The entry of new suppliers into the contraceptive market has the potential to increase competition, break the monopolies of big pharmaceutical companies, and reduce prices signifi cantly. Finally, free trade agreements in the Americas, such as CAFTA and the Free Trade Agreement could create barriers of entry for new players wishing to participate in the market for medicines and contraceptives. Some of these commercial agreements require that signatory governments adhere to common pharmaceutical regulations and standards for their purchases. These regulations and standards are likely to favor larger, well-established pharma­ 34 OPTIONS FOR CONTRACEPTIVE PROCUREMENT: LESSONS LEARNED FROM LATIN AMERICA AND THE CARIBBEAN ceutical companies over newer, smaller ones. Countries in Central America and the Dominican Republic recently signed free trade agreements with the United States that allow U.S. companies to compete as suppliers for govern­ ment purchases over a specified monetary value. This new development, coupled with new pharmaceutical standards with which only large companies can comply, could well reduce competition in the contraceptive market. POOLED PROCUREMENT MODELS None of the countries studied has any experience in the pooled procurement of contraceptives at the regional level. Many consider procurement through UNFPA akin to a globally pooled procurement system that takes advantage of economies of scale. Central America has taken an important step toward facilitating the pooled procurement of medicines and medical inputs subregionally. These countries have harmonized their medical registries (registros sanitarios) by establishing common pharmaceutical norms that establish the technical criteria required for authorization by the registry. Under this system, a medical/drug registry in one country can be officially recognized by any or all of the other countries in the subregion. This obviates the need for any given drug to be registered multiple times in diff erent countries, thereby speeding up drug registration processes and paving the way for pooled procurement. However, this common drug registry is not regularly updated and has yet to be incorporated into national legislation. The Central American countries have established common standards for GMPs in the pharmaceutical industry and harmonized inspection procedures for the industry. This is also true of the MERCOSUR (Mercado Común del Sur) member countries (Brazil, Argentine, Uruguay, Paraguay, and Venezuela). The negotiation of low ARV prices by 10 Andean countries points to a relevant subregional experience in which a group of countries successfully negotiated with pharmaceutical companies and establish regulated prices at which they could purchase ARVs. A similar price negotiation process has also been utilized by MOHs in El Salvador, Peru, and Nicaragua, for example, to purchase medicines for the entire health system, albeit from local suppliers. Regional or subregional price negotiations that take advantage of economies of scale could be an interesting option to explore for contraceptive purchases in Latin America. The Strategic Fund for the purchase of medicines and other goods, established by the Pan-American Health Orga­ nization (PAHO) in 2000, is a fund countries can draw from, and it is made up of voluntary contributions from participating countries. One of its objectives is to facilitate the “supply of pharmaceutical products to national health programs related to nutrition, child and adolescent health, and reproductive health of women,” while achieving savings through economies of scale and receiving high-quality products in a timely and effi cient manner. This fund represents another mechanism through which countries can purchase drugs and contraceptives. However, its solvency depends on the timely and adequate contributions of the member countries. It would be advisable, therefore, for PAHO to work in close coordination with UNFPA for the purchase of contraceptives, given UNFPA’s established agreements with contraceptive manufacturers. Finally, a nearby example of a pooled procurement mechanism is the Eastern Caribbean Drug Service. Under this model, the MOHs from nine separate islands pool their procurement of class A and B essential drugs. Established in 1986 with six ministries, under the USAID-funded Rational Pharmaceutical Management program, three additional MOHs joined in 1995. The service became fi nancially self-sufficient in 1989, based on a 15 percent administrative fee charged to participating governments. By 1994, it was operating with a surplus that it invested through the Eastern Caribbean Central Bank. During its first procurement cycle, the service realized a 52 percent unit cost reduction, followed by an additional 18 percent in its second cycle with competitive bidding (for 59 class A products). The average country savings for the first tender ranged from 16 percent to 88 percent. Th e service does not purchase for the private sector, which often needs branded products, symptomatic treatment, and more expensive packaging (also potential administrative costs to supply multiple small pharmacies). LESSONS LEARNED 35 TABLE 11. LEVELS OF QUALITY CONTROL Manufacturers should be prequalified Manufacturers participating in tenders should ideally be prequalified to ensure that they apply GMP, are internationally recognized with U.S. Food and Drug Administration and/or European Union drug approvals and recognized by WHO. For example, under Guatemala’s open contract mechanism, the Ministry of Finance solicits bids from a short list of prequalified providers who are selected by the government on the basis of price, quality, and ability to provide sufficient volume. In Chile, CENABAST solicits bids only from local suppliers that have been preapproved by ISP.The accreditation of these providers is outsourced to an international firm in the interest of transparency. Tenders should be correctly specified Contraceptive commodity tenders should have clear technical specifications that can be verified by the tender evaluation committee. Drug registration All countries require that new drugs be registered. Registration should strike the right balance between supporting public safety without creating a barrier to supply.To facilitate this process, Central American countries are implementing a regional harmonization of drug registration. Under this system, a drug registered in one country can be officially recognized by any or all other countries in the subregion, as they now do it in some of the South American countries (e.g., Ecuador and Colombia). Pre- and postshipment inspection and Protocols for testing the quality of contraceptives should specify the basis and frequency for quality testing quality testing. Use of international and regional laboratories should be considered where in- country facilities are underdeveloped. In Chile, where capacity exists, the ISP screens samples of all products that are imported. Addressing manufacturer liability for Supplier contracts should specify that manufacturers assume responsibility for disposing of failed shipments failed lots of contraceptives. Note: CENABAST = Chilean national procurement agency for the National Health Service; GMP = good manufacturing practice; ISP = Chilean National Institute of Public Health;WHO = World Health Organization. This service encountered some difficulties, including the diversity of its member states (language, history, etc.), which was being overcome by efforts from the Organization of Eastern Caribbean States. In addition, member countries were defaulting, or being allowed to do so, on reimbursements to their accounts with the Eastern Carib­ bean Central Bank; the local (regional) currency was not stable; and weak forecasting performance diminished the full potential of pooled procurement.20 ENSURING BUDGETS ARE FUNDED Procurement using public funds is frequently affected by two problems that undermine efficient planning and result in higher costs to the public sector. Even where budget lines are allocated, cash flow and treasury manage­ ment constraints can undermine the ability of the Ministry of Finance to make all the necessary procurement funds available at one time. If budgets are made available on a quarterly basis, the MOH may be forced to make four smaller purchases of commodities rather than one bulk purchase. Furthermore, payment delays can occur depending on how purchases are actually paid for, with invoices for approved purchase orders being sent to the treasury for payment. These delays and risks of nonpayment will reduce the possibility of negotiating lower prices from suppliers or entering into agreements with UNFPA. 20. Abdallah, Hany. 2005. West Africa Reproductive Health Commodity Security. Review of Pooled Procurement. Arlington,Va.: John Snow, Inc./DELIVER, for the U.S.Agency for International Development. 36 OPTIONS FOR CONTRACEPTIVE PROCUREMENT: LESSONS LEARNED FROM LATIN AMERICA AND THE CARIBBEAN ESTABLISHING QUALITY CONTROL PROCEDURES Effective quality control is of paramount importance to safeguard public safety and ensure that eff ective methods are procured. Quality control for contraceptives and medicines needs to be regulated at several points throughout the procurement process, as presented in table 11. The capacity for quality control of medicines, including contraceptives, differs widely across countries in the region. In some countries, quality control mechanisms are quite rudimentary. These countries lack the infrastruc­ ture, equipment, and qualified personnel to carry out quality control functions systematically. In these countries, MOHs often rely exclusively on the quality certification that a supplier presents with its bid. Designing strong quality control standards and procedures, assigning an autonomous entity the role of oversight, training personnel in quality control procedures, and allocating funds for purchase of equipment and infrastructure are all necessary steps in improving a country’s quality control procedures. OTHER LESSONS FOR PHASEOUT PREPARING A FINANCIAL AND PROCUREMENT PLAN Countries need a clear plan of how they will fund and procure their contraceptives once USAID and other donors withdraw. Following are examples of procurement strategies that other countries within the LAC region implemented following donor phaseout of contraceptives. PROCUREMENT MECHANISMS AND PRACTICES IN MEXICO BOX 3. NGO SUSTAINABILITY AND THE CASE OF APROFA The withdrawal of USAID support IN CHILE for contraceptive commodities in Mexico was characterized by an In mid-1992, USAID officially announced its intention to withdraw from overall supportive environment Chile, given the level of socioeconomic development attained by the country and the level of maturity of the institutions that benefited from donations. for RH and FP. In general, contra- The phaseout strategy was deployed over three years, from 1992 to 1995. ceptive prevalence had reached At that time, USAID offered a matching grant to help APROFA.The grant a mature level, the government’s aimed to help APROFA reorganize and develop new business lines to ensure support for FP and RH had been long-term economic viability and to assist the organization in defining its new institutionalized, and the program role after phaseout. had the technical and fi nancial Because APROFA did not truly expect USAID to phase out, the organization capacity to meet the FP needs of the did not accept the grant and did very little to formally plan for phaseout.The Mexican population. perception of APROFA today is that, at the time, there was a problem of credibility concerning the announcement of USAID’s withdrawal. Until then, In 1996, when USAID contracep­ there had been a history of nearly 30 years of collaboration. During that tives donations ended, the govern- period, USAID subsidized most APROFA activities, including planning, pro­ ment’s family planning budget curement, distribution, and promotion of FP methods.Thus, APROFA did not stood at U.S.$13 million. Th ese anticipate the dramatic level of reduction in assistance, even though phaseout plans had been announced.critical factors set the stage for a smooth transition from USAID As a result of a lack of planning and preparation,APROFA experienced a dra­ support. However, the fact that matic reduction in its portfolio of services. In fact, of the 40 associated clinics procurement responsibilities for that APROFA managed at some point, today only 5 are in operation.Today, APROFA is self-critical for not having taken better advantage of the resources contraceptives were decentralized to available to it during the transition period.The organization feels that a formal the state level almost immediately phaseout strategy, deeply involving the public and social market sectors, after USAID’s phaseout caused a would have mitigated the dramatic negative impact on the organization. major rupture in the provision and LESSONS LEARNED 37 supply of contraceptives. Most states were unprepared and unfamiliar with the processes for projecting, planning, and budgeting for their contraceptive needs. The result was frequent stockouts. This represents a major lesson for other countries that are facing USAID phaseout and addressing CS in a decentralized setting. Th ese countries must make sure they gradually develop capacity at lower levels to ensure that facilities are able to forecast, plan for procurement, order, and distribute contraceptives in an efficient manner before devolving full responsibility to them.21 NGO SUSTAINABILITY PLANS In the LAC region, USAID technical assistance has worked toward ensuring CS and efficient use of available resources by promoting a multisectoral approach. Throughout the phaseout period in the five graduated countries studied, USAID encouraged partnerships between public and private sector providers and emphasized the comple­ mentary role that the private sector can play in reaching all segments of the population. In addition, USAID worked with NGOs to develop sustainability plans after phaseout as well as to form partnerships or collaborate with public and commercial sectors. It is helpful to examine what happened to these NGO service providers once USAID funding ended. Although some NGOs were able to sustain themselves through a variety of methods, such as instituting or increasing user fees, developing successful social marketing programs, offering additional services to family planning, obtaining funding from new sources, and collaborating with other sectors to contract out services, some organizations were more effective in dealing with phaseout than others. For instance, while USAID provided funding support to develop a strategic response to phaseout, NGOs did not always take the prospect seriously, in some cases mistakenly assuming that USAID funding for their FP activities would continue. Box 3 provides an important example of how the IPPF affiliate in Chile (APROFA, Asociación Chilena De Protección De La Familia), previously one of the leading FP service providers, lost its share of the market to the public sector by not clearly understanding the impact of USAID’s intention to phase out support to Chile. Furthermore, although NGOs in the five graduated countries were committed to reaching the most vulnerable segments of the population, they were often forced to make trade-offs between serving the poor and becom­ ing sustainable. Most of the NGOs in the five graduated countries experienced a decline in low-income clients after fees were initiated and targeted activities were cut from work plans. For instance, in Mexico, the Fundación Mexicana para la Planeación Familiar (MEXFAM) clinics planned to cover their own costs by cross-subsidizing their community programs. However, they were only able to generate enough funds to cover one-third of their social programs and, consequently, were forced to scale back their programs. APROFA, in Chile, also saw a shift in clientele and was no longer able to reach the poorest segments of the population by providing free services and contraceptives. Despite challenges of becoming sustainable, some NGOs developed successful phaseout strategies. For example, unlike other NGOs in Brazil, Bem-Estar Familiar no Brasil (BEMFAM) is still actively involved in the sale of contraceptives and providing services to an ever-increasing number of clients (see box 4). BEMFAM characterizes its role as complementary to government activities. It often works through cooperative agreements established with the public sector that allow the NGO to directly influence municipal management by bringing attention to two important issues: (1) the diversification and expansion of method mix as a true demonstration of respect for women’s and men’s choices in FP; and (2) discussion about important issues related to women’s and men’s health (e.g., gender, poverty, and youth). In the last 12 years, BEMFAM served more than 4 million clients and patients through municipal cooperative agreements. BEMFAM also operates six RH clinics that are designed to model 21. For a more in-depth discussion of issues related to decentralization, please refer to Decentralizing and Integrating Contraceptive Logistics Systems in Latin America and the Caribbean:With Lessons Learned from Asia and Africa (Beith, et al.) and Decentralizing and Integrating Contraceptive Logistics Systems in Latin America and the Caribbean: Considerations for Informed Decision-Making When Decentralizing and Integrating Health Logistics System Functions (Sán­ chez et al.). 38 OPTIONS FOR CONTRACEPTIVE PROCUREMENT: LESSONS LEARNED FROM LATIN AMERICA AND THE CARIBBEAN ways that women’s and men’s health BOX 4. LESSONS LEARNED IN BRAZIL FROM BEMFAM care needs should and could be satisfied in Brazil. Several factors contributed to BEMFAM’s success in sustaining FP services af- Unlike many NGOs in the LAC ter USAID phaseout. First, since the very beginning, and during its 40 years of existence, BEMFAM received but never depended on USAID funding. USAID region, the Asociación Pro-Bienestar funds traditionally represented only a small percentage of BEMFAM’s budget. de la Familia Colombiana (PROFA- Thus, the impact of USAID’s withdrawal on the organization and its opera- MILIA) in Colombia has been a tions was not severe. Furthermore, BEMFAM has been largely implementing leader in FP since the 1960s. In its activities through direct cooperative agreements with state and municipal 1990, the organization provided at health secretariats, which has set its operations apart from the other NGOs least 65 percent of all FP services in Brazil (a majority of which depend on international financial support or on sporadic and irregular MOH funding and projects). Finally, BEMFAM’s in the country and managed to experience, size, and connections with the government give it credibility and maintain a leading role during and strengthen its image of being a strong candidate for public funding and MOH throughout phaseout. PROFA- contracts. MILIA manages clinics throughout the entire country and eff ectively reaches the rural and urban poor through the use community-based distribution strategies and partnerships with the public (Social Security) and commercial sector. PROFAMILIA’s success has been attributed to strong leader­ ship; effective strategies for marketing, innovation, and fundraising; a focus on the client; and the provision of high-quality services. The organization’s service delivery strategies were essential to ensuring sustainability. Since its inception, the organization instituted a fee-for-service approach that operated on a sliding scale. In this manner, the organization began working toward sustainability from the outset and applied cross-subsidies to maintain the lowest prices for the poorest of the poor. At the same time, the organization focused on providing high-quality services and an appropriate method mix to close the gap between public and commercial services. In other words, PROFAMILIA focused on the needs and preferences of the client by providing a broad mix of contraceptive methods and excellent care. By focusing on the client, the organization stood out in comparison to the public sector, which was unable to provide the same broad range of products and the same level of care. Furthermore, during the 1970s, PROFAMILIA implemented a self- sustaining social marketing program by purchasing contraceptives wholesale and selling them to local distributors and commercial outlets at a reduced price. The organization used the profits from this program to help fund its Community Based Distribution and other programs, including sterilization. During the 1980s, the CBD and social marketing programs faced major challenges as revenue declined because of higher priced contraceptives, MOH-established prices for drugs, and government prohibitions on the NGO sale of donated products. In response, the organization developed various strategies for reducing costs, generating addi­ tional funds, and operating more efficiently. PROFAMILIA combined the social marketing and CBD programs to lower overhead costs. In addition, the organization diversified the types of services it provided as well as looked for new partners. PROFAMILIA broadened its services to include a range of RH services it had not previously provided. The NGO charged a higher margin on these services but maintained a lower price than other private facilities. The revenue generated from these services was used to subsidize FP services for the poor and the CBD and other programs. In addition, PROFAMILIA obtained contracts with public and private entities to provide services on their behalf, such as the Social Security institution. Through the use of innovative business strategies and good planning, PROFAMILIA withstood some of the same pressures that other NGOs in the LAC region experienced during phaseout and successfully managed to sustain itself while maintaining its commitment to serve the poor. The various case studies presented above illustrate key lessons for NGOs to draw upon when developing plans for eventual phaseout. To prepare for a smooth transition, NGOs should consider the following important lessons: LESSONS LEARNED 39 • Recognize that phaseout is real, and prepare for it with business plans that identify service diversifi cation options and identify NGO strengths and weaknesses. • Develop strategic partnerships with public sector (such as Social Security) to supplement local public services. • Follow Colombia’s PROFAMILIA example and develop a business plan that helps them to be part of the health reform, so that clients can pay according to their classification in the socio-economic scale. 40 OPTIONS FOR CONTRACEPTIVE PROCUREMENT: LESSONS LEARNED FROM LATIN AMERICA AND THE CARIBBEAN PROCUREMENT OPTIONS Before elaborating country-specific regional procurement options, it is important to reiterate some core rela­tionships between CS and procurement: • Effi cient and effective procurement is a cornerstone of CS in the LAC region. • Effective procurement requires an emphasis on striking a balance between obtaining value for money, ensuring product quality, and ensuring transparency and effi ciency in procurement. • Ideally, wherever possible, national capacity and the regulatory environment should be developed to enable the public sector to make informed buying decisions from different international and national sources. • Where capacity or regulatory constraints do not permit a wide range of procurement options, mechanisms, such as using UNFPA as a procurement agent, should be considered in the short to medium term. Ideally, public procurement should be efficient, transparent, and provide value for money while safeguarding quality and public safety. Based on the pricing and regulatory analyses, several key options have been identifi ed to improve the effectiveness, transparency, and efficiency of contraceptive procurement strategies in the region. Th ese options have been grouped according to short-term, medium-term, and long-term phases as countries in various stages of development toward sustained CS have differing priorities and face a range of challenges. Each LAC country studied faces a unique set of circumstances and conditions. Table 12 summarizes regulatory and capacity constraints as well as suggested procurement options (drawn from lesson learned in all 14 countries) for each of the nine USAID-presence countries. Recommendations are clustered depending on whether countries are already engaging in or are considering informed buying, which is purchasing based on market studies where comparisons of alternative pricing options are identified to guide the bidding process.22 We next elaborate on each of the recommendations and indicate those that could be considered for the short-, medium-, and long-term solutions. SHORT-TERM OPTIONS Countries that have not begun to procure contraceptives for themselves should take some first steps to ensure a smooth transition once donors phase out support. Most likely, countries that are just beginning to prepare for phaseout will require technical assistance in planning and preparing for procurement on their own. Below are a series of first steps that can be taken to begin to build the foundation for efficient and sustainable procurement into the future. Develop financial and procurement plans for eventual phaseout of contraceptives from USAID and others donors. Financial and procurement planning should be in place in countries preparing for phaseout from USAID and other donors in order to identify who will take over responsibility for procurement, what measures need to be in place for these institutions to take over, and which interim mechanisms, such as UNFPA or other procurement agents, can be considered as a solution until national capacity is in place. The plans should include commodity and 22. It is necessary to distinguish between informed buying and coordinated informed buying. Informed buying is when countries share information about prices and suppliers before individually conducting procurement.Alternatively, coordinated informed buying refers to the practice by which member countries undertake joint market research, share supplier performance information, and monitor prices, followed by individual procurement. PROCUREMENT OPTIONS 41 TABLE 12. SUMMARY OF CONSTRAINTS AND PROCUREMENT OPTIONS Procurement Capacity Regulatory Environment Procurement Options Countries Engaged in Informed Buying Peru MOH is already undertaking There are restrictive • Further develop procurement capacity informed buying with procurement regulations, but at all levels and collaborate with the market studies and using these are being overcome with private sector when possible and different sources for different the use of special exceptions. effi cient contraceptive methods, including • Continue to use price comparisons local private suppliers and (including added costs), collect pricing UNFPA. information over time, and share information with other countries in the region Dominican Republic Price comparisons have led to a There are restrictive • Implement regulatory reform when switch from local procurement procurement regulations, but possible to using UNFPA as an agent. these are being overcome by • Monitor performance of UNFPA and using UNFPA. other local and international suppliers El Salvador Price comparisons have led to a There are restrictive • Implement quality assurance switch from local procurement procurement regulations, but measures, especially when procuring to using UNFPA as an agent. these are being overcome with from suppliers that have not been the use of special exceptions. prequalifi ed by WHO. • Publish prices obtained to further deepen transparency • Explore opportunities for pooling procurement • Advocate for public monitoring of the procurement process Countries Using Procurement Agents Guatemala Procurement being undertaken There are less-restrictive local • Develop procurement capacity, by UNFPA procurement regulations. including the ability to access competitive prices, forecast, order, and distribute at all public sector levels • Collect pricing information to ensure that the UNFPA price is the best available • Monitor UNFPA performance and continue to refine and formalize this relationship • Examine scope for regulatory reform Honduras Procurement was undertaken There are restrictive local • Develop procurement capacity, by UNDP in the past; new procurement regulations. including ability to access competitive government officials will prices, forecast, order, and distribute at assess the effectiveness of this all public sector levels mechanism. • Analyze other procurement options, such as UNFPA, and take steps to formalize this relationship if it proves more efficient than the UNDP option • Collect pricing information to ensure UNFPA or UNDP prices are the best available • Monitor UNDP performance • Examine scope for regulatory reform 42 OPTIONS FOR CONTRACEPTIVE PROCUREMENT: LESSONS LEARNED FROM LATIN AMERICA AND THE CARIBBEAN TABLE 12. SUMMARY OF CONSTRAINTS AND PROCUREMENT OPTIONS (CONTINUED) Procurement Capacity Regulatory Environment Procurement Options Countries Considering Their Options Ecuador Bolivia Paraguay Nicaragua Procurement at the local level at high prices No procurement yet of contraceptives as products are still donated Little FP procurement No FP procurement Decentralized procurement at the health area Less-restrictive local procurement regulations • Examine mechanisms for pooling procurement for health areas and/or municipalities to take advantage of economies of scale • Develop procurement capacity, Decentralized procurement at the municipality including the ability to forecast and efficiently manage ordering and distribution systems • Consider UNFPA as a short- to mid-term solution and take steps to formalize this relationship (i.e., MOU) Less-restrictive regulations • Develop procurement capacity, including ability to forecast and There are restrictive local procurement regulations efficiently manage ordering and distribution systems • Consider UNFPA as a short- to mid-term solution and take steps to formalize this relationship (i.e., MOU) financial projections using SPECTRUM23 and PipeLine24. Support from donors will likely still be required, as in Guatemala, to establish initial funding and reinforce the commitment from governments to fund budget lines. Bolivia, with its lower contraceptive prevalence rate (CPR) and higher poverty levels, will also require continued donor support. Develop the ability within each institution to accurately forecast national contraceptive needs and fi nancial requirements, prepare and carry out procurement plans, place orders in a timely manner, and efficiently distribute commodities to all levels. If contraceptives are to be available to those who need them, the ability to prepare for, plan, procure, and efficiently distribute contraceptives is essential at all levels of the public sector. Tech­ nical assistance from donors will likely be required to assist countries with the proper management of an efficient supply chain, including efficient procurement processes. Consider the option of working with UNFPA as a procurement agent while domestic procurement capacity is being developed and regulatory barriers are addressed. Using UNFPA as a procurement agent will entail setting up an MOU with UNFPA, coming to an understanding about gradual decreases in donations and gradual increases in country funding for the purchase of contraceptives, preparing budgets and financial forecasts that slowly set aside funding for the eventual purchase of all contraceptives, and beginning to understand how econo­ mies of scale obtained from UNFPA can benefit a country. Throughout this stage, a country may need technical assistance from UNFPA and other donors to plan for a gradual decrease in donations, to assist the forecasting and financial budgeting process, and to identify procedures for establishing an agreement with UNFPA. Strengthening procurement capacity requires specialized regional training so that those responsible for procurement are familiar with contraceptives specifications, can correctly define bid requirements, are equipped to evaluate bid quality, and can monitor and evaluate bid performance. Implement measures to include an expanded method mix in the EDL and harmonize this list with other public institutions’ basic drug lists. MOH EDLs in Peru, El Salvador, Nicaragua, the Dominican Republic, 23. SPECTRUM is a software suite of policy models that are used to project the need for reproductive health services and the consequences of not ad­ dressing reproductive health needs (available at http://www.constellafutures.com). 24. PipeLine is a monitoring and procurement planning software tool that helps program managers gather critical forecasting information, ensure that products arrive on time, maintain consistent stock levels at the program or national level, and prevent stock-outs (available at http://www.deliver.jsi.com). PROCUREMENT OPTIONS 43 Guatemala, Ecuador, and Bolivia are restrictive25––if the drug/medicine (or contraceptive in this case) is not on the list, it may not be purchased with government funds––so, the inclusion of all contraceptive methods is vital to ensuring their availability at MOH establishments. The EDLs in all these countries, except Ecuador26 include a wide range of contraceptive methods. However, they often do not include condoms, which are nonhormonal and do not qualify as drugs, and IUDs, which are considered medical devices. Including condoms and IUDs in an expanded EDL would allow the MOH to purchase these methods and ensure their availability at public sector health facilities after contraceptive donations end. Harmonizing the MOH EDL with the basic drug lists of Social Security Institutes in these countries would also enable them to purchase and provide a wide range of contraceptives to their beneficiaries, many of whom now rely on the MOH or private sector for their FP needs27 MEDIUM-TERM OPTIONS Countries looking at options in the medium term need to establish the ability to procure, forecast, and fi nance contraceptives without external technical assistance; begin to remove regulatory barriers; and develop the ability to obtain better prices than UNFPA, if they are available locally or internationally. If countries can begin to remove restrictive procurement regulations and develop greater domestic procurement capacity, then they may benefi t from establishing a Web-based coordinated informed buying arrangement. Information similar to that collected for this analysis could be collected and shared on a routine basis to help inform procurement decisions. Establish a fully funded, protected budget line item for contraceptive commodities. Although many countries in the LAC region have allocated funds for procuring contraceptives, most government commitments and recent practices for allocating money for contraceptive procurement do not give FP a legally protected status that would guarantee full disbursement of required funding each year. In these countries, cash flow and treasury management constraints typically can undermine the ability of the Ministry of Finance to make all the necessary procurement funds available at one time. Vaccines in many of these countries, however, do have a protected status and, because of this, the Ministry of Finance is legally obligated to transfer the entire amount of resources budgeted for the purchase of vaccines in any given year. These funds are then transferred to the PAHO revolving fund through which these countries purchase vaccines. Ensuring CS in an environment of limited public sector resources may well require that RH and FP be elevated to a similar level of importance, particularly given their links to reduc­ ing maternal, neonatal, and infant mortality (see box 5). This would enable governments to make bulk purchases through UNFPA and other suppliers, as well as participate in regional or subregional pooled procurement schemes (similar to the vaccine fund) in the future. Promote the use of price comparison tools to identify best prices. Prices are one of the most important factors that countries need to consider in selecting suppliers of contraceptives.28 Securing the best possible price for good- quality contraceptives is vital for achieving CS in the absence of donor funding. Countries in this study do not have a comprehensive tool or system in place to allow them to compare prices offered by different local and inter­ national suppliers of medicines and contraceptives in the region. Developing, systematizing, and updating such a tool (e.g., a reference price list) is an important first step in identifying the best procurement option or combina­ tion of options that will ensure efficient use of scarce government resources for contraceptive purchases. Manage­ ment Sciences for Health (MSH) publishes an annual price indicator guide29 providing ex works and CIF prices 25. In Paraguay, the EDL does not include contraceptives. However, this has not been a barrier to purchasing contraceptives because the Ministry’s EDL is not restrictive. 26. In Ecuador, the EDL is restrictive in nature and includes only oral contraceptives and IUDs. However, the MOH can purchase contraceptive commodi­ ties that are not on the EDL because the Law of Free Maternity and Infant Care guarantees their availability at SDPs and includes all methods in its own EDL. 27. Until recently , the Social Security Institute in Paraguay (IPS) could not purchase contraceptives because they were not included on its basic drug list.At present, IPS only provides contraceptives to its beneficiaries if they are donated by the MOH, but it is expected that institutional purchases will begin later in 2006. 28. Other important factors to consider include quality, availability of product in sufficient quantities, and timeliness. 44 OPTIONS FOR CONTRACEPTIVE PROCUREMENT: LESSONS LEARNED FROM LATIN AMERICA AND THE CARIBBEAN on medicines and consumables charged by key suppliers to public sector programs. The price guide provides low, high, and median prices that can be compared with those obtained in LAC countries. This guide can serve as a powerful advocacy tool to liberalize procurement if wide disparities are found, or at least help institutions consider the need to open their bids to international suppliers, so that direct information on prices can be obtained from both local and international suppliers. Explore and enter into negotiations with new sources of supply, including UNFPA or other lower price providers (NGOs and GMP generic manufacturers). As mentioned throughout this analysis, some countries have diversified their sources of contraceptive purchases to include new, more competitive suppliers, such as producers from Brazil and India, or to negotiate directly with larger manufacturers. The experience of ESKE in Peru represents such a case. If lower prices are available from other sources, countries can consider new sources of supply while continuing to procure from UNFPA as long as UN prices remain competitive. Nevertheless, if countries intend to procure from multiple suppliers, they should continue to monitor and formalize their relation­ ships with suppliers and build the capacity to correct inefficiencies throughout the procurement process. Clearly, monitoring more than one supplier requires added administrative oversight, increased procurement capacity, and a more liberal regulatory environment. Furthermore, countries must continue to refine their ability to select contraceptives and clearly determine specifi cations, define bid requirements, evaluate bid quality, and monitor and evaluate bid performance. In addition, as countries begin to procure from new sources, they must implement BOX 5. PAHO REVOLVING FUND FOR VACCINES—CAN IT quality assurance measures to WORK FOR CONTRACEPTIVES? guarantee that these commodities are as efficacious and safe as those In the past, several meetings and discussions have been held with PAHO provided directly through the UN officials regarding contraceptive procurement. In most of these discussions, PAHO has expressed an interest in facilitating the procurement process system. on behalf of governments in the region through a mechanism similar to Examine the scope for addressing the revolving funds used to procure vaccines.Three conditions facilitate the implementation of the vaccine mechanism:restrictive regulatory environ­ ments, including unnecessary 1. The immunization program is one of the high-priority programs in each of tariffs, limits on access to a range the countries, and governments consider vaccines as “strategic products.” of suppliers, bureaucratic delays Therefore, governments are obligated to allocate funds to procure them. throughout the procurement 2. On an annual basis, governments have to deposit funds into the revolv­ process, and VAT on contraceptives. ing fund for vaccines, and PAHO has the flexibility to procure supplies on Identify laws and regulations that behalf of governments, even if not all governments have allocated all the impact price as well as breadth needed funds for their particular program, since it usually has a “financial cushion,” just like USAID through its global procurement agreements. of quality suppliers and begin to determine whether there is any 3. Vaccines are highly visible, politically speaking, and governments will not risk scope to reform or eliminate these their political status.This makes the immunization program financially viable, restrictions. For instance, countries since funds are earmarked and ensure availability. can consider making the case for This mechanism has not been implemented for contraceptives because FP exempting contraceptives purchased programs do not fulfill the set of criteria described above. As long as FP is by the public sector from VAT and not considered a high priority, contraceptives will not be considered “stra­ duties. As table 8 shows, public tegic products,” and funds will not be earmarked for contraceptive procure- ment.There is limited possibility to procure contraceptives using the revolving sector purchases of contraceptives fund mechanism unless FP were to receive more concentrated attention and are exempt from VAT in six out of an elevated status as a priority program. the nine countries studied. Th ese 29. International Drug Price Indicator Guide is available at http://www.msh.org/resources/publications/index.cfm PROCUREMENT OPTIONS 45 BOX 6. BENEFITS OF REMOVING VAT FROM CONDOMS IN BRAZIL, AND FROM ALL METHODS IN COLOMBIA In Brazil, the petition to exempt condoms from the value-added sales taxes was accepted by the government. Its ratification came in 1997, when the condom tax exemption was granted by all states of the Brazilian federation. This action significantly lowered the price of the product, despite the fact that it did not lower any import taxes or prices of raw materials. In Colom­ bia, since the beginning of health reform (1993), all contraceptive methods were exempted from VAT, and condoms were exempted from VAT and tax/duties.This exemption has contributed to an increase in competition in the contraceptive market, which has resulted in more variety in methods and lower prices. Such prices have benefited consumers by providing them with better choices in both quality and price.The final outcome has been a wider choice for users. In Brazil, both supply and demand of condoms in the market increased, with 425 million condoms sold per year in pharmacies and drugstores (70 percent), supermarkets (25 percent), and other small outlets (5 percent). exemptions apply only to the public sector, not to NGOs. Th ese taxes increase the financial burden on governments, particularly because all governments provide contracep­ tives free-of-charge to consumers and, hence, there is no option to pass on the tax burden to consumers. MOHs should consider following the lead of Colombia, where all contraceptives are exempt from VAT, and condoms are both exempt from both VAT and import duty because they form part of the basic basket (canasta básica) (see box 6). Seeking duty exemption would require making a case to the Ministry of Finance for exempting from tariffs and taxes either (1) all drugs and medicines on the EDL or (2) those drugs and medicines that do not enter the commercial route. There are precedents for such tax exemptions. Vaccine purchases in most countries are exempted from taxes because immunization is considered a health priority and vaccines have a protected status. In El Salvador, contraceptives purchased with public sector funds through UNFPA are exempted from import taxes if they are introduced into the country using a Presidential Decree (Fran­ quicia Presidencial). When conducting decentralized procurement, at a minimum, it is important to ensure that price negotia­ tions are consolidated at the central level to capitalize on the benefits of economies of scale. A country’s ability to negotiate the best possible price for a specific product, including medicines and contraceptives, depends in large part on the volume being purchased. Higher volumes vastly improve the purchaser’s power of negotiation, thereby yielding lower prices and significant savings. Recognizing this reality, some countries in the region have systems in place for centralized purchase or centralized price negotiations of medicines for the entire public sector health system. In other countries, however, the purchase of drugs and medicines is fragmented, with purchases taking place at the individual health region and municipality, health establishment, or program level. Fragmented purchases are small in quantity, noncompetitive in nature, and very costly, with none of the attendant advantages of bulk procurement, which leads to a significant waste of scarce resources. Countries that do not have systems in place for consolidated or centralized procurement and price negotiation would be well-served by studying the consolidated procurement mechanisms in use in such countries as Mexico, Chile, Costa Rica, Guatemala (open contract mechanism), Peru, Honduras, and El Salvador, and using those and other models to design their own centralized procurement or price negotiation mechanisms. LONG-TERM OPTIONS As countries strengthen their procurement capacity, improve regulatory environments, and implement tools to facilitate efficient procurement (i.e., price selection), they can transition from utilizing UNFPA as a procurement agent and for the source of their supply to using local or open international competitive procurement and informed buying. On the other hand, if countries are unable to remove regulatory barriers or to develop the capac­ ity to select qualified and cost-efficient suppliers on their own, they should consider procuring through UNFPA 46 OPTIONS FOR CONTRACEPTIVE PROCUREMENT: LESSONS LEARNED FROM LATIN AMERICA AND THE CARIBBEAN on a permanent basis or only through manufacturers that have been prequalified by UNFPA and its partner agencies, notably WHO and the United Nations Children’s Fund (UNICEF). Strengthen procurement capacity to enable staff to conduct informed buying, contract management, tender­ i

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